Question

1. A publisher faces the following demand schedule for the next novel of 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 (MR=TR/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. if the author were paid $3 million instead of $2 million to writhe the book, how would this affect the publisher’s decision regarding the price to charge?Explain.
E. Suppose the publisher was not profit maximizing but was concerned with maximizing economic efficiency. What price would it charge for the book? How much profitwould it make at this price?

Answer 1

.P ....... Q .......... TR ............ TC .......... Profit
100 ....... 0 ............ 0 ....... 2000000 .. -2000000
90 .. 100000 ... 9000000 ... 3000000 ... 6000000
80 .. 200000 .. 16000000 ... 4000000 .. 12000000
70 .. 300000 .. 21000000 ... 5000000 .. 16000000
60 .. 400000 .. 24000000 ... 6000000 .. 18000000 <- Maximum profit
50 .. 500000 .. 25000000 ... 7000000 .. 18000000 <- Maximum profit
40 .. 600000 .. 24000000 ... 8000000 .. 16000000
30 .. 700000 .. 21000000 ... 9000000 .. 12000000
20 .. 800000 .. 16000000 .. 10000000 ... 6000000
10 .. 900000 ... 9000000 .. 11000000 .. -2000000
0 .. 1000000 ............. 0 .. 12000000 . -12000000