Answered: The attached graph shows the demand…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The attached graph shows the demand curve for a new digital product that you developed, (It might be a game, a video that you produced, or something else). Since it is digital, it is essentially costless for you to replicate the product, so all of your production costs are fixed (and now sunk) and variable costs are zero. a.) What does the marginal revenue (MR) curve look like for this demand curve? Explain your answer by giving the vertical and horizontal intercepts of the MR curve b.) Given your answer, what price should you charge for your new product in order to maximize your profit? How much revenue would you collect? Briefly explain. C.) What would be the economically efficient price for your new product? Briefly explain. d.) What is the consumer surplus loss from charging your profit-maximizing price instead of the economically efficient price?

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