Digital piracy. Suppose the British rock band Radiohead is about to release its new album In Rainbows. For now, assume the band cannot choose the price of the album, which is set at $10. The (marginal) cost to distribute each copy is $2. (a) If demand for the album is given by p = 100 - q, how many albums will be sold? What will profits be? (b) Draw the demand curve and indicate the price and quantity of albums sold using your answer to (a). Calculate deadweight loss and show this on your diagram too. (c) Suppose that the introduction of the Internet lowers distribution costs to $0 but also allows consumers to pirate the album for free. Assume that consumers who were not willing to pay $10 will pirate the album. If 50% of consumers that were prepared to pay $10 (or more) for the album also pirate for free, what will Radiohead's profits be? What is deadweight loss?

Digital piracy. Suppose the British rock band Radiohead is about to release its new album In Rainbows. For now, assume the band cannot choose the price of the album, which is set at $10. The (marginal) cost to distribute each copy is $2. (a) If demand for the album is given by p = 100 - q, how many albums will be sold? What will profits be? (b) Draw the demand curve and indicate the price and quantity of albums sold using your answer to (a). Calculate deadweight loss and show this on your diagram too. (c) Suppose that the introduction of the Internet lowers distribution costs to $0 but also allows consumers to pirate the album for free. Assume that consumers who were not willing to pay $10 will pirate the album. If 50% of consumers that were prepared to pay $10 (or more) for the album also pirate for free, what will Radiohead's profits be? What is deadweight loss?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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