In 2015, Apple introduced the Apple Watch. Assume that the cost of producing the 38mm Apple Watch Sport was $88. The price was $331. What was Apple's price/marginal cost ratio? What was its Lerner Index? If Apple is a short-run profit-maximizing monopoly, what elasticity of demand did Apple believe it faced?

Apple's price/marginal cost ratio, Lerner index, and the elasticity of demand is 3.76, 2.76 and - 0.36 respectively.

Explanation:

a. The computation of apple's price / marginal cost ratio is shown below:

Price / marginal cost ratio = Price : cost

= $331 : $88 = 3.76

b. The computation of Lerner index formula is shown below:

Lerner index = (Price - marginal cost) : price

= ($331 - $88) : $88

= $243 : $88

= 2.76

c. The computation of elasticity of demand is shown below

Elasticity of demand = - 1 : Lerner index

= - 1 : 2.76

= - 0.36

Hence, apple's price/marginal cost ratio, Lerner index, and the elasticity of demand is 3.76, 2.76 and - 0.36 respectively.