Apple Computer’s cost to produce the components, the headphones and the packaging it ships in comes...

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Apple Computer’s cost to produce the components, the headphones and the packaging it ships in comes to $21.77 for the iPod shuffle. That’s about 28% of the device’s retail price of $79.
a.	Is Apple making $57 profit per shuffle? If not, explain Apple’s other costs in terms of fixed and variable costs (give examples).
b.	If Apple reduced its price for the shuffle, what do you think would happen to their profit? What impact would the price decrease have on their competitors? Explain by considering the elasticity of shuffles).

David · Accepted Answer

Apple Computer’s cost to produce the components, the headphones and the packaging it ships in comes to $21.77 for the iPod shuffle. That’s about 28% of the device’s retail price of $79.
a. Is Apple making $57 profit per shuffle? If not, explain Apple’s other costs in terms of fixed and variable costs (give examples).
NO: technically speaking profits/unit= revenue/unit – fixed cost/ unit – variable cost/unit
The question provides us with variable cost / unit only. Apple will be incurring fixed costs like cost of lease/ rent on the land where shuffles are produced, taxes to government towards use of civic amenities, costs of running the factory—electricity, water charges, costs of administrative staff, marketing costs, advertising costs, research and development costs, cost of sales support staff  etc.

Apple Computer’s cost to produce the components, the headphones and the packaging it ships in comes to $21.77 for the iPod shuffle. That’s about 28% of the device’s retail price of $79. a. Is Apple...

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