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ECO 561 Week 6 Individual Assignment - Final Proposal (iPhone 6) - A+ Guide!

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RUNNING HEAD: BUSINESS PROPOSAL 1
Business Proposal
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RUNNING HEAD: BUSINESS PROPOSAL 2
Industry of smartphones
The industry of smartphones has been rapidly increasing since the development of the
touch screen and smarter technology for the mobile phone business. When touch screens and
advanced 3G/4G technology was introduced, people trended away from flip-phones and
Motorola © Razors to iPhones, Samsung Galaxies, Windows HTCs, and other substitutes.
The market for smartphones is a very young one, currently in its maturing phase. Direct
competitors of Apple, Inc. include Google, Samsung, Hewlett-Packard Company, BlackBerry
Limited, and Microsoft (Yahoo Finance, 2014). There are a large number of firms in the
smartphone industry, but not too large. Furthermore, each company sells the same quintessential
product, but each is differentiated Apple sells its iPhone with special retina screens, Samsung
sells with a larger screen, etc. There are no major barriers to entry to the market, so firms that are
not profitable in the smartphone business can easily leave and vice versa (McConnell et al,
2009). All of these facts point to the fact that the market structure is a monopolistic competitive
environment.
Elasticity of demand
Focusing only on the iPhone 6, the product is very hotly desired when it is released. The
trend has shown that each year when a new iPhone is released, the people who purchase it on the
first week is huge. The trend will only prove itself with the release of the iPhone 6. The trend of
new iPhones also has the trend of the increasing prices. The iPhone 5S was the most expensive
iPhone at a starting price of $649; the iPhone 6 will exceed this at a starting price of $749
(Magee, 2014). Judging by the trend, an increase of price will most likely not shy any loyal
Apple buyer to not buy the new iPhone 6. This relates directly to the elasticity of the iPhone 6;

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RUNNING HEAD: BUSINESS PROPOSAL 3
the elasticity of demand of a product is defined as the percentage change in quantity over the
percentage change in price. The elasticity of demand is always considered positive, regardless of
the calculation. In this situation, an increase in the price of iPhone 6 would probably cause a
minimal decrease in the quantity demand; people will choose to buy iPhone 6’s that have lower
memory capacity to make up for the increase in price. Therefore, the elasticity of demand is a
small negative number, such as -0.1 then considered positive, or 0.1. An elasticity of demand
of 0.1 is less than one, thus considered inelastic (McConnell et al, 2009).
Pricing of the product
The elasticity of demand of the iPhone 6 has been determined to be a small positive
number, and therefore inelastic. Therefore, Apple, Inc. can choose to price its iPhone 6 with
relative easy. Although, it must always be careful of its competition; with a raise in iPhone 6
prices, its competitors can decrease its products’ prices to further increase the gap in prices,
enticing loyal Apply customers to purchase smartphones from other sources.
The decision to raise prices on iPhones will affect Apple, Inc.’s supply curve on the side.
Apple will wish to sell more of its iPhones since the price of iPhones is larger. Thus, the supply
curve will increase in the market graph for iPhone 6s. In this specific situation, an increase in
supply would also change the marginal costs and marginal revenues of Apple, Inc. With a higher
price, the marginal revenue for Apple, Inc. goes down, while its marginal cost remains the same.
On the other hand, for the consumer, his/her marginal benefit from purchasing iPhones goes
down, and his/her marginal cost of purchasing iPhones goes up.
Non-pricing strategy

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