1) Using the scenario listed below Figure 1, write a demand function where demand for Apple Watch is a function only of the price of Apple Watch. Demand for the Apple WatchThe Apple Watch team contemplated their U.S. launch strategy for early 2015, the first quarterof Apple Watch sales, and estimated the weekly demand function for the U.S. market. (SeeFigure 1 below.)This function included prices of what the team determined to be the mostsignificant competitors for the Apple Watch, in addition to other variables.Figure 1Qaw = -150,000 – 2400 PAw + 1520PGears + 1200 Ppebble – 1200 Piphone6 + 44 AQaw is the quantity demanded of the Apple Watch per week.PAw is the price of the Apple Watch (dollars per unit).PGears is the price of the Samsung Gear S watch (dollars per unit).Prebble is the price of the Pebble Steel (dollars per unit).• Piphones is the price of the mid-range iPhone 6 smartphone (dollars per unit).• A is the quarterly targeted advertising budget for the Apple Watch (in thousands ofdollars per quarter).As the team prepared for launch, they contemplated a scenario with the following variablevalues: PAw =$349, PGears =$380, PpPebble =$220, PiPhone6 =$299, A=$15,500. Regression analysisresults showed the coefficient of determination to be 0.7581 and the standard error of theestimate to be 30,000.Cost ConsiderationsAccording to an Apple Watch cost analysis by the Wall Street Journal of May 1, 2015, variablehardware and manufacturing costs per unit were estimated at $83.70. Cost estimates did notinclude intellectual property, royalties and licensing fees, shipping, logistics, and other channelcosts. One analyst estimated these figures could amount to at least as much as the hardwarecosts.7 (Please see Exhibit 2 for smartwatch cost structure.) A reasonable variable costestimate was $178 per unit.

Demand Function is defined as the relationship between the quantity demanded of a good (dependent…

Answered: Using the scenario listed below Figure…

Using the scenario listed below Figure 1, write a demand function where demand for Apple Watch is a function only of the price of Apple Watch.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter4: Estimating Demand

Section: Chapter Questions

Problem 6E

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