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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 = Δ TR /Δ Q .) 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?

BuyFind

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305156050
BuyFind

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305156050

Solutions

Chapter
Section
Chapter 15, Problem 1PA
Textbook Problem

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 = ΔTRQ.) 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?

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