A publisher faces the following demand schedule for the next novel from one of its popular authors:PriceQuantity Demanded$1000 novels90100,00080200,00070300,00060400,00050500,00040600,00030700,00020800,00010900,00001,000,000The 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
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
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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