In early May of 2015, CNBC released an article regarding one of the year’s most highly anticipated technologies, the Apple Watch. In the article, CNBC reported evidence from the data and analysis company, IHS. CNBC stated that the components of Apple’s lowest priced watch, retailing at $349, only cost about $84 (Sidibe). After reading this article, I wondered why Apple Inc. insisted on keeping the profit margins so high for a product that had unstable sales projections due to the watch’s branding as a “luxury item” (Lomas). As a result of my natural curiosity, I researched the cost of production for some of Apple’s most popular technologies such as the iPhone, iPad, and iPod. As I expected, the retail price and cost of production

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In order to study the relationship between the price and demand of a product I had to calculate the “price elasticity of demand”. I also studied the relationship between the revenue and marginal revenue of a product to form a more in-depth answer to my question.

Relationship between Supply and Demand My first step in studying the relationship between the price and demand of an object was to do some research on the basics of economics. The law of demand states that as the price of a product increase the demanded quantity of an object decreases The law of supply states that as the price of a product rises the more of that product will be sold because companies will aspire to increase their revenue. Assuming there are no abnormal factors, the law of supply and demand can be graphed linearly. I have created a graph to model this trend. The intersection between a supply graph and a demand graph is called the equilibrium price. This is the ideal price at which an item is sold because the quantity of a product demanded by consumers equals the quantity that the store is willing to sell. As a result, stores can avoid having a shortage or a surplus of the

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The price equation will be linear so the slope (m) of the equation can be found by dividing the change in average price (Δp) by the change in units demanded (Δd). I will use the data from Apple’s 3rd Quarter in 2014 and 2015. y=mx+b ∴ p(d)=md+b m=∆p/∆d= (P_(Q3 2015)-P_(Q3 2014))/(D_(Q3 2015)- D_(Q3 2014) ) m=((415.14-432.66))/((10,931,000-9,883,000)) m≈ -1.67×〖10〗^(-5) p(d)= (-1.67×〖10〗^(-5))d+b

A literal equation for the price of an item in reference to its demand would not have a y-intercept that is represented by “b” because the price at which there is absolutely no demand for an object is unpredictable and may not necessarily fall in line with the linear equation for price. However, for this theoretical analysis I will find the value for “b”. In order to calculate “b” I must incorporate the data from Apple’s 3rd financial quarter in 2014. The price (p) will be $415.14 and the demand (d) will be 10,391,000