Suppose the following demand for iPhone apps:

Price (per app)    $10    $9    $8    $7    $6    $5    $4    $3

Quantity

Demanded (millions)    2    3    4    5    6    7    8    9

a. At $9, what quantity is demanded?

b. If the price drops to $6, what quantity is demanded?

c. Is demand elastic or inelastic in that price range?

d. If advertising convinces people to demand 3 million more apps at every price, how many apps will be demanded at a price of $9?

e. Graph the above answers, using Point A for (a), Point B for (b) and Point C for (d).

Problem 2

Is it possible for a company to show an accounting profit even while it is incurring an economic loss? How? What might happen with such a company?

Problem 3

If investment in new machinery doubles the productivity of every worker, what will the MPP of the fifth worker in Figure 5.1 on p. 94 be?

Internet Question

Visit the blog “Best Ads Ever” at http://www.bestadsever.com/ and view some of the current ads you find there.

a. Which ad did you like the most? Why did you like it—because you like the product advertised, or because you thought it was a well-made advertisement, or for some other reason?

b. Which ad did you like the least? Why didn’t you like it—because you don’t like the product advertised, or because you thought it was a poorly-made advertisement, or for some other reason?

c. Referring to the material in Chapter 4, what was the purpose of both of the ads that you mentioned in parts a and b? Which of the determinants of demand were the ads attempting to change, and in what way? How successful or unsuccessful do you think these ads are?

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