1. In order for Apple to calculate the estimated price elasticity of demand between the market prices of $2.99 versus $1.99, Apple must first estimate the percentage change in quantity demanded. Once the company can determine what effect each price will have on the quantity demanded, they can apply price elasticity of demand formula which is calculated by dividing the percent change in quantity demanded by the percent change in price. With the price information given, the percent change in price is equal to about 50.25%, if the new price is $2.99 and the old price was $1.99. In the end, if the elasticity of demand is greater than 1 then the demand is elastic. If the elasticity of demand is less than 1 then the demand is inelastic. If the elasticity of demand is equal to 1 then the demand is unitary.
2. The relevance of a price floor and price ceiling is definitely important to Apple. The price floor should be low enough where Apple could break even. This would be at a price where Apple would make no profits but also take no loss. This would be after paying the music labels, movie producers, and television networks as well as Apple's other costs. Apple's price ceiling would take place at a price where there will not be any demand above that price. For example, if the maximum price a customer is willing to pay for an episode is $3.99, then that would be part of the price ceiling. This is relevant to Apple because they are dealing with their music, movie, and television show suppliers wanting to higher the price. Apple is afraid that a price above the price ceiling may cause customers to not buy the content. A price below the price floor would cause Apple to lost money which it cannot afford to do.
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