A publisher faces the following demand schedule for the next novel from one of its popular authors:
Price
Quantity Demanded
Unit change
$100
0
0
90
100,000
1
80
200,000
2
70
300,000
3
60
400,000
4
50
500,000
5
40
600,000
6
30
700,000
7
20
800,000
8
10
900,000
9
0
1,000,000
10
The author is paid $2 million to write the book, and the marginal cost of publishing the book is a constant $10 per book.
1. Compute the total revenue, total cost and profit at each quantity. What quantity would a profit maximizing publisher choose? What price would it charge?
A publisher faces the following demand schedule for the next novel from one of its popular authors:
|
Price |
Quantity Demanded |
Unit change |
|
$100 |
0 |
0 |
|
90 |
100,000 |
1 |
|
80 |
200,000 |
2 |
|
70 |
300,000 |
3 |
|
60 |
400,000 |
4 |
|
50 |
500,000 |
5 |
|
40 |
600,000 |
6 |
|
30 |
700,000 |
7 |
|
20 |
800,000 |
8 |
|
10 |
900,000 |
9 |
|
0 |
1,000,000 |
10 |
The author is paid $2 million to write the book, and the marginal cost of publishing the book is a constant $10 per book.
1. Compute the total revenue, total cost and profit at each quantity. What quantity would a profit maximizing publisher choose? What price would it charge?
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According to the table below,
| Output per month | Price | Total Revenue | Total Cost | Total Profit | Marginal Revenue* |
Marginal Cost* | Average Total Cost | Profit per Unit (Price Minus Average Cost) |
| 0 | $ 1,000 | $ 0 | $ 60,000 | -$60,000 | - | - | - | - |
| 100 | 1,000 | 100,000 | 90,000 | 10,000 | $ 1,000 | $ 300 | $900 | $100 |
| 200 | 1,000 | 200,000 | 130,000 | 70,000 | 1,000 | 400 | 650 | 350 |
| 300 | 1,000 | 300,000 | 180,000 | 120,000 | 1,000 | 500 | 600 | 400 |
| 400 | 1,000 | 400,000 | 240,000 | 160,000 | 1,000 | 600 | 600 | 400 |
| 500 | 1,000 | 500,000 | 320,000 | 180,000 | 1,000 | 800 | 640 | 360 |
| 600 | 1,000 | 600,000 | 420,000 | 180,000 | 1,000 | 1,000 | 700 | 300 |
| 700 | 1,000 | 700,000 | 546,000 | 154,000 | 1,000 | 1,260 | 780 | 220 |
| 800 | 1,000 | 800,000 | 720,000 | 80,000 | 1,000 | 1,740 | 900 | 100 |
| 900 | 1,000 | 900,000 | 919,800 | -19,800 | 1,000 | 1,998 | 1,022 | -22 |
| *Note that output levels are calibrated in hundreds in this example; that's why we have divided the change into total costs and revenues from one output level to another by 100 to calculate marginal revenue and marginal cost. Very few manufacturers deal in units of 1. | ||||||||
(a) What were the fixed costs of production for the firm?
(b) At what rate of output was profit per computer maximized? (Choose the highest output level.)
(c) At what output rate was total profit maximized? (Choose the highest output level.)
