Final answer:
Apple might increase prices to balance supply and demand, potentially increasing revenue if demand is price inelastic. However, significant price increases can eventually reduce demand and harm brand value, particularly for a monopolistic competitor like Apple.
Step-by-step explanation:
When Apple cannot meet the demand for its products, it faces a decision on whether to increase prices to balance supply and demand. Price increases may offset the decrease in the number of units sold, potentially increasing total revenue. According to economic principles, if the price elasticity of demand is 1, the company is already maximizing revenue, suggesting that it should maintain its current price level. However, economists note that very high prices will, over time, reduce the quantity demanded, while very low prices that reflect a reduced quality will eventually lead to an increase in quantity demanded as buyers perceive greater value.
In the context of a monopolistic competitor, such as Apple, an increase in demand due to a successful advertising campaign would usually lead to a higher price and increased quantity supplied. However, in practice, a company must also consider brand value and customer perceptions. If a price rises significantly, a company risks alienating customers and damaging its brand in the long term.