Based on market research, a film production company in Ectenian obtains the following information about the demand and production costs of its new DVD: Demand: P = 1,000 – 10Q Total Revenue: TR = 1,000Q – 10Q2 Marginal Revenue: MR = 1,000 – 20Q Marginal Cost: MC = 100 + 10Q where Q indicates the number of copies sold and P is the price in Ectenian dollars. d. Suppose, in addition to the costs above, the director of the film has to be paid. The company is considering four options: i. A flat fee of 2,000 Ectenian dollars ii. 50 percent of the profits iii. 150 Ectenian dollars per unit sold iv. 50 percent of the revenue
Based on
Demand: P = 1,000 – 10Q
Total Revenue: TR = 1,000Q – 10Q2
Marginal Revenue: MR = 1,000 – 20Q
Marginal Cost: MC = 100 + 10Q
where Q indicates the number of copies sold and P is the price in Ectenian dollars.
d. Suppose, in addition to the costs above, the director of the film has to be paid. The company is considering four options:
i. A flat fee of 2,000 Ectenian dollars
ii. 50 percent of the profits
iii. 150 Ectenian dollars per unit sold
iv. 50 percent of the revenue
For each option, calculate the profit-maximizing price and quantity. Which, if any, of these compensation schemes would alter the
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