Case Study Assignment 1

Instructions:
Read the given case study very carefully and then answer the following questions. Answers should be
very brief and precise-I do not want long explanations at all. Wherever possible draw a diagram to
explain your point.
You will be evaluated on accuracy of answers, precision and application of concepts done in the class.
You do not need to do external research on smartwatch industry. All your answers should be based on
what is given in the case study. If you are making any assumptions, state them very clearly.
Total Points: 40
1. Describe the smartwatch market. (2 points)
a) Who are the buyers? Identify three needs/wants of the consumers that a smartwatch fulfills.
b) Who are the sellers? Identify three sellers and highlight their differentiating features.
2. Choose the right option in the below statements about the smartwatch industry and explain your
choice very briefly. (2 points)
a) Apple watch is a consumer/capital good.
b) Study of the smartwatch industry is a microeconomic/macroeconomic topic.
3. The Smartwatch Group predicted 250% annual growth in sales of the smartwatch industry for several
years. The industry sales were low till middle of 2014 (about 700,000 smartwatches shipped worldwide).
But the sales were expected to surpass traditional watch sales in 2018 and become a six-billion-dollar
market by 2020.
Sketch a diagram for (a) smartwatch market and (b) traditional watch market to reflect the above
scenario i.e. reflect the growth from 2014 to 2020. State your assumptions. (3 points)
Note: No need to mention specific number of units/dollars.
4. Explain, using a demand-supply diagram, the “complementarity between smartwatches and phones”.
How are the “attributes and pricing of accessories such as smartwatches a key weapon in the mobile
phone competitive battle”? (3 points)
5. Consider Figure 1 on Page 5 of the case study which shows the Apple Watch pricing strategy and
answer the following questions. (7 points)
a) What is/are the dependent variable/s in the model?

b) What is/are the independent variable/s in the model?
c) Explain the “sign” of the coefficients of the following variables i.e. explain why the coefficient of the
variable is negative or why it is positive? Use the right terminologies.
i) PAW
ii) PGearS
iii) PPebble
iv) PiPhone6
v) A
6. USE MICROSOFT EXCEL FOR THIS QUESTION
Consider the scenario that the Apple team had contemplated with the following variable values, prior to
the launch.
PAW = 349, PGearS = $380, PPebble = $220, PiPhone6 = $299, A=$15,500
a) Calculate the QAW, using the above values and the demand function in Figure 1. (1 point)
b) Calculate QAW only changing PAW to values given in the table. This means keep PGearS , PPebble , PiPhone6
and A fixed. (2 points)
PAW 300 310 320 349 350 360 380 390 400
QAW
c) Using the table above draw a demand curve (use MS Excel line chart option). Take QAW on Y-axis and
PAW on X-Axis. Like a typical demand curve, your curve should be downward sloping. (3 points)
d) For each of the situations below, explain the effect on the demand curve i.e. is it a movement along
the curve, a rightward shift, or a leftward shift? (10 points)
Calculate the change in QAW and label the variable as New_QAW. Use the same range for PAW i.e $300-
$400 to draw an updated demand schedule. Graph a new demand curve (if there is a shift). Keep all
other variables, except the one mentioned, as fixed. For example, in (b) only P GearS changes to $400, rest
of the values remain as given above i.e. PAW = 349, PPebble = $220, PiPhone6 = $299, A=$15,500
i) Increase in price of AW from $349 to $400
ii) Increase in price of Gear S from $380 to $400
iii) Decrease in price of Pebble from $220 to $150
iv) Decrease in price of iPhone6 from $299 to $250
v) Increase in Advertising budget from $15,500 to $ 17,000

6. What is the marginal cost of producing one more Apple Watch? In other words, what is the
Opportunity Cost to the company of producing one more Apple Watch? (1 points)
7. How will Apple’s entry in the smartwatch industry impact the following? (3 points)
a) The other suppliers. Sketch a diagram to show the affect.
b) Healthcare Industry
c) Society in general.
8. Do you own a smartwatch? If not, find a friend or family member who does. Ask yourself/them
following questions. (3 points)
a) Which smartwatch brand do you/they have?
b) What price did you/they buy it for?
c) What was your/their budget constraint when buying the watch?
d) What was yours/their opportunity cost in buying the watch? Explain in terms of what you/they gave
up to buy it.
e) Why did you/they choose the brand you/they did? What were the “substitutes” or “complements”
involved in the purchase decision?
f) Would you/they want to buy an upgrade when it is released?
g) If yes, what is your/their reservation price for it? If no, why?
h) The watch can most likely be resold. How much can you/they resell it for? (If you/they don’t know
exactly, come up with a reasonable estimate, for example 60% of the original value)
i) If you/they don’t sell it, what is the opportunity cost of keeping it?

Case Study Assignment 1

Uploaded by

Copyright:

Available Formats

Case Study Assignment 1

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Case Study Assignment 1

Uploaded by

Copyright:

Available Formats

Instructions:

1. Describe the smartwatch market. (2 points)

a) Apple watch is a consumer/capital good.

b) Study of the smartwatch industry is a microeconomic/macroeconomic topic.

Note: No need to mention specific number of units/dollars.

a) What is/are the dependent variable/s in the model?

6. USE MICROSOFT EXCEL FOR THIS QUESTION

PAW = 349, PGearS = $380, PPebble = $220, PiPhone6 = $299, A=$15,500

i) Increase in price of AW from $349 to $400

ii) Increase in price of Gear S from $380 to $400

iii) Decrease in price of Pebble from $220 to $150

iv) Decrease in price of iPhone6 from $299 to $250

v) Increase in Advertising budget from $15,500 to $ 17,000

a) The other suppliers. Sketch a diagram to show the affect.

a) Which smartwatch brand do you/they have?

b) What price did you/they buy it for?

c) What was your/their budget constraint when buying the watch?

f) Would you/they want to buy an upgrade when it is released?

g) If yes, what is your/their reservation price for it? If no, why?

You might also like