A publisher faces the following demand schedule for the next novel from one of its popular authors: Price Quantity Demanded $ 100 0 novels 90 100,000 80 200,000 70 300,000 60 400,000 50 500,000 40 600,000 30 700,000 20 800,000 10 900,000 0 1,000,000 The author is paid $2 million to write the book, and the marginal cost of publishing the book is a constant $10 per book. a. Compute total revenue, total cost, and profit at each quantity. What quantity would a profit-maximizing publisher choose? What price would it charge? b. Compute marginal revenue. (Recall that MR = ΔTR/ΔQ.) How does marginal revenue compare to the price? Explain. C. Graph the marginal-revenue, marginal-cost, and demand curves. At what quantity do the marginal-revenue and marginal-cost curves cross? What does this signify? d. In your graph, shade in the deadweight loss. Explain in words what this means e. If the author were paid $3 million instead of $2 million to write the book, how would this affect the publisher’s decision regarding what price to charge? Explain. f. Suppose the publisher was not profit-maximizing but was concerned with maximizing economic efficiency. What price would it charge for the book? How much profit would it make at this price?
A publisher faces the following demand schedule for the next novel from one of its
popular authors:
Price Quantity Demanded
$ 100 0 novels
90 100,000
80 200,000
70 300,000
60 400,000
50 500,000
40 600,000
30 700,000
20 800,000
10 900,000
0 1,000,000
The author is paid $2 million to write the book, and the marginal cost of publishing
the book is a constant $10 per book.
a. Compute total revenue, total cost, and profit at each quantity. What quantity would
a profit-maximizing publisher choose? What price would it charge?
b. Compute marginal revenue. (Recall that MR = ΔTR/ΔQ.) How does marginal revenue
compare to the price? Explain.
C. Graph the marginal-revenue, marginal-cost, and demand
do the marginal-revenue and marginal-cost curves cross? What does this signify?
d. In your graph, shade in the
e. If the author were paid $3 million instead of $2 million to write the book, how would
this affect the publisher’s decision regarding what price to charge? Explain.
f. Suppose the publisher was not profit-maximizing but was concerned with
maximizing economic efficiency. What price would it charge for the book? How much
profit would it make at this price?
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