In 2005, Apple introduced the Mac mini G4, a miniature computer that weighs only 2.9 pounds but comes fully loaded with lots of memory and a large hard disk. According to one estimate, the cost of production was $258 (Toni Duboise, “Low-cost Apple Mini Packs Punch, but BYO Peripherals,” www .eetimes.com), while its suggested price was $499. Although other firms produce computers, the Mac is viewed as a different product by aficionados. What is Apple’s price/marginal cost ratio? What is its Lerner Index? If we assume that Apple is a profitmaximizing monopoly, what elasticity of demand does it believe it faces for this tiny computer?
The price/marginal cost ratio is 499/258 = 1.93. The Lerner index is (499 − 258)/499 = 0.48, and the elasticity Apple believes it faces is −2.08.