The Microeconomic Analysis



Final Project Part 1 – The Microeconomic Analysis of Apple IPhones
















Milestone 1 Paper

MBA 502- Q3783

Professor Morales

Crystal Scottborgh


Apple Inc. is arguably the leader of the word in the technology industry. Apple Inc. provides multiple types of products consumers use to navigate their lives including smartphones, tablets, laptops, watches and more. This paper will primarily focus on Apple Inc.’s smartphone industry and address microeconomics concepts and how Apple Inc.’s smartphones are impacted.


Keywords: Apple Inc., Smartphones, Microeconomics, Industry


  1. Overview

Apple Inc. started off in 1976 as a part of the technology industry specifically under the computers industry. Since then, Apple has evolved into a multifaceted company, with approximately 147,000 employees, who dominates multiple industries including but not limited to the smartphone, tablet, laptop, and sport watch industry (Apple 2021 Form 10Q1). IPhones are different from many smartphones because they run IOS software. IOS is built around accessibility which is very user-friendly and one of the reasons why Apple’s clientele is loyal and why many make the switch to Apple. IPhones are released seasonally so Apple’s IPhones sales normally spike during a release period. According to Apple’s 2021 Form 10-Q, IPhone net sales were up 17% in sales from 2019, totaling its 2020 net sales at $65.59 billions, due to the release of the Apple IPhone models (Apple 2021 Form 10-Q).





  1. Elasticity, Supply, Demand & Market Equilibrium

Because Apple is one of the few technology giants, joined by Samsung, Google, Microsoft, etc., that provides smartphones, smartphones are not a product one can necessarily substitute.  Also, although smartphones are technically a luxury item, they have become a necessity in today’s evolving technological world. Price changes in the IPhone would not necessarily change a consumer’s mind on whether they will purchase the next IPhone to be released. In this sense, the IPhone is a relatively inelastic product which will be purchased regardless of its price, and due to the lack of substitutes for the smartphone & it’s software. There is a consistent demand for IPhones and for the latest models since Apple always provides updates to their phones and software which is desirable by its consumers.

Although smartphones as devices do not have substitutes, one can buy smartphones from different brands and therefore there are substitutes to buying Apple IPhones. One can instead buy a smartphone from Samsung, Google, Motorola, etc.. The IPhone 12 was released in October 2020. One of its substitutes, was the Samsung Galaxy Note 20 Ultra, which had been released a couple months prior in August 2020. One non-price factor that affects the demand for IPhones, is the price of related goods. The Samsung Galaxy Note 20 Ultra was released at an $800 price point, just like the IPhone 12 (Google). Therefore, the demand for the IPhone would not fall or rise necessarily because the price of related goods was similar and would not have a negative or positive effect on quantity demanded and therefore there would not be a shift in the demand curve. Another non price factor which increased the demand for the IPhone 12 release, was consumer’s expectations regarding future prices. Because IPhone prices are normally on the rise, the release of the IPhone 12 staying at the same price as the IPhone 11 release from the prior year seems more attractive for buyers and increases the demand for the product shifting the demand curve to the right. Also, many carriers made deals with consumers for trade ins so consumers will ultimately upgrade to the IPhone 12 at low cost, and in some cases $0 (Mishra, 2020).

In terms of supply, with the IPhone 12, there were non price factors which affected the supply curve to shift as well. One factor would be price expectations. Producing the IPhone 12 was much more expensive than producing the IPhone 11, a 21% increase. This was because of the improvements in the display screen and converting the model to be 5G compatible (Gallagher, 2021). I would assume the supply curve overall would shift left because the supply would fall slightly because of the increase in cost of the production of the phone. The supply will eventually level out once more purchases of the phones are made. Another non price factor which affects the supply curve is the technology used in the phone. One can assume because of the state-of-the-art quality of 5G and the new display the IPhone 12 has it also causes the supply curve to shift to the left and the supply of the IPhone 12 to fall slightly.

As discussed, prior, the IPhone 12 is a part of the smartphone industry. I would say market equilibrium has been achieved with the IPhone 12 now, but when the phone was first released, there was a shortage in supply and a high demand for the product. Ultimately, the product did better than expected in sales. If the price of the regular IPhone rose to $1200, I would say the demand of the IPhone would fall and shift the demand curve to the left. If the price of the IPhone dropped below the price of the substitute the Samsung Galaxy S21, to under $800, the demand of the IPhone 12 would rise as long as all other things remain equal. Market equilibrium will eventually be reached once again once the supply and demand for the product level out.

Because of how expensive it is to produce an IPhone, one cannot simply drop the cost of the phone itself, otherwise a large profit would be unattainable. If the rival smartphone release were released and it was less expensive than the IPhone, I would create incentives for purchasing the IPhone such as a free Apple Fit subscription for 3 months. This would incentivize consumers to purchase my phone because they are getting more bank for their buck. This would keep the demand for the product high and the supply would match the demand.

III. Production and Costs

Factors of Production are the necessary inputs which are required for the creation of a good. The main factors of production include land, labor, capital, and entrepreneurship. Land refers to natural resources used to produce a good. Land is not created by human effort. Entrepreneurship refers to the ideas necessary to create the good. Labor refers to the people who are physically doing the work using their skills and time. Finally, capital refers to the tools, equipment, technology, and factories which are necessary to create the good too (Hesse, accessed 2021).

The smartphone industry falls under an oligopoly. An oligopoly is a market structure which constitutes a small number of firms who control most sales in the industry. In an oligopoly, the factors of production across firms are similar, but what typically differs is how these factors bring together the final product. In the smartphone industry, one factor of production that sets companies apart in the smartphone industry is the technology that is used to manufacture the products. For example, Apple uses the IOS software, whereas Samsung using Android software in their smartphones. This leads to a different consumer type for each brand and can also inadvertently affect brand loyalty.

In terms of inputs needed to manufacture a smartphone, land, labor, and capital are essential. Glass is a material that is not manmade, but a natural resource. It falls under the land input. Glass is used in the production of IPhones and helps create the screen on Apple’s IPhones. Labor involved in the production of IPhones includes, but is not limited to, engineers who work on manufacturing and the overall design and look of the IPhones. In addition to engineers who fall under the Labor input, the workers in China who assemble the actual IPhone, miners who extract the land materials necessary to make the iPhones (Anthony, accessed 2021). The capital involved in the production of IPhones includes all the tools, machinery, and factories involved in production. Apple uses assembly lines to assist in the production of IPhones. Back in 2013, Apple invested $10.5 Billion dollars into machinery to help create more IPhones and IPods (Hesse, 2017). Annually, Apple continuously includes money in their budget to assist in the production of their products.

Costs are associated with factor of productions. The IPhone 11 was released in 2019. The costs associated with producing the IPhone 11 are shown in the below table:

Apple uses a production company, Foxconn, a Taiwanese company, to physically assemble their products.  By outsourcing the production to outside of the United States, Apple can maximize profits and can take advantage of economies of scale in China. Therefore, the cost advantages that comes with having production in China, allow Apple to benefit and reduce the cost of producing iPhones. Essentially, Apple turns more profit. At Foxconn, laborers physically assemble the IPhones. Laborers at Foxconn are reportedly paid about $3.15 per hour or around $300 per month (Brown, 2020). One may realize how much Apple benefits at the low costs involved in production and how more profit is able to be made. Most costs are variable, however salaried costs are predominantly fixed. Apple also invests its money in research and development which also falls under the Labor factor of production. In 2020, Apple spent $18,752,000,000 in research and Development (Apple 2020 10-K).

As mentioned previously, some of the costs associated with the Capital factor of production involved in producing IPhones includes Apple invested money into machinery. However, Apple also must pay rent and leases for the buildings where the IPhones are made, as well as where they have corporate offices, and stores where they sell their phones. For 2021, Apple estimated to spend $1,622,000,000 in leases. Apple also estimated to spend $47,961,000,000 in manufacturing for 2021 (Apple’s 2020 10-K). Because Apple has been a well-established company for 20+ years, they are able to make educated estimates based on previous years and trends in spending which they have analyzed.

Being how profitable Apple is as a company, $104,956,000,000 in Gross Profit Margin in 2020, if I were CEO, I would continue to outsource production to keep costs at a minimum when producing the goods we sell (Apple 2020 10-K). If I were to shift production to the United States, it would come at a much higher cost to the company just because of the minimum wage, let alone the added costs in leases, and factories.

  1. Market Structure

Being that Apple is a very large technology company, it operates across many industries. As stated previously, the IPhone falls under the smartphone industry which has an oligopoly market structure. In an oligopoly market, a few number of sellers control the market. Over the past several years, Apple has continuously improved its net income. Apple has also stayed on top of its sales, and its stock price has risen time and time again.

The table above depicts the 5-year summary of Apple’s IPhone Net Sales, as well as the Annual ending Stock Price per share using the information gathered from Macrotrends. The growth rath of Apple’s Net Sales has not been increasing consistently. In 2017, Apple has a 3.27% growth rate in net sales from 2016. In 2018, there was a 14.4% increase in Net Sales from 2017. In 2019, however, Apple’s IPhones net sales dropped. There was a -15.81% decrease in net sales from 2018. In 2020, there was also a drop, but at a lower percentage rate of -3.34% from 2019. In 2019, the IPhone 11 and IPhone 11 pro were release. According to Apple’s CEO, Tim Cook, said “he was bullish on Apple IPhone 11 sales”, meaning Apple’s IPhone sales were expected to decrease, however based on the 10K and financials, one can see that was not the case (Cohen et. all, 2019). Apple struggled with the release of the IPhone 11. Moreover, in 2020, Apple suffered from the COVID-19 Pandemic but towards the end of 2020 was able to push for more sales and broke records in early 2021 with iPhone sales of the iPhone 12. Although Apple had struggled with the smartphone industry, their other products ended up breaking records.

The graph below shows the same statistics as above but in a visual form. One can see that although iPhone net sales have only slightly increased over the last 5 years, Apple’s Stock price has continuously risen and now broken the $130 stock price per share.



Being an oligopoly, the few sellers in the industry can control and dominate the market. Because of how strong Apple is as a brand, it is able to dictate the prices of its products and will still have loyal consumers purchasing the products. Even though consumers may not buy the new IPhones each year and may have a more delayed time period of when they are purchasing their next phone, the consumers are still loyal to Apple as a brand regardless of how expensive the items that are being sold by Apple are.

The industries market structure would change based on increased costs in production and manufacturing, as well new competitors entering an industry, and policy changes on production. Apple is able to benefit from economies of scale. And because Apple has production international, policy changes in these countries could pose changes to how Apple currently operates. Apple would have to determine where they could maximize efficiency and production without acquiring more costs associated with production.

Another issue that could potentially affect how Apple conducts business would be if a rival company released a product that blew IPhone out of the water, at a much better price. Apple would have to decrease their prices for IPhones or find ways to better their phone models to keep their loyal customers, as well as to attract the new clients the rival company can potentially be swaying to convert to their brand. Being in an oligopoly gives the few sellers a large amount of power over the market and the prices they sell their products at.

I would conclude Apple is doing a great job at continuing to improve their phones and although their sales have not been consistently on the rise, on average the company has been doing well. Apple’s business strategy regarding accessibility keeps consumers loyal and happy. If Apple stays innovative, they will continue to dominate the smartphone industry and grow their brand.



Apple 2020 Form 10-K (Rep.). (2020, September 26). Retrieved March 28, 2021, from UNITED


Apple – 41 Year Stock Price History: AAPL. Macrotrends. (n.d.).

Anthony, J. (2018, November 22). How iPhone is made: The global assembly line. Retrieved

March 28, 2021, from

Brown, R. (2020, March 27). The Cost of Making an iPhone. Retrieved March 28, 2021, from

Cohen, M. E., Centers, J., Eddy, G. D., Paine, M., & Engst, A. (2019, November 4). Apple Q4

2019 Breaks Records Despite Slipping iPhone Sales. TidBITS.

Gallagher, William. “Apple’s IPhone 12 Costs 21% More to Make than IPhone 11, Claims New

Research.” Apple Insider, 7 Jan. 2021,



Hesse, T. (2017, November 21). How to use an apple component AV cable. Retrieved March 29, 2021, from

Mishra, Varun. “IPhone 12 Becomes World’s #1 5G Model Within Two Weeks of Launch.”

Counterpoint Research, 21 Dec. 2020,


United States Securities and Exchange Commission. (2017, September 30). Apple Inc. 2017 10K. 2017 10k



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