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AF 1605
Introduction to Economics
Individual Presentation
Question 7.2
Konova Dariia
14108352D
Q7.2
Since there is only one publisher of any single textbook, the publisher is a monopoly in
each textbook market. Suppose that the demand function for a certain economic textbook
is given by P=600-0.6Q in dollars per copy and the corresponding marginal revenue is
MR=600-1.2Q. The publisher’s cost of production is TC=50,000+40Q+0.02Q2 and the
corresponding marginal cost is MC=40+0.04Q. The author’s royalty is 20 % of total
revenue
 Determine the publisher’s profit-maximizing output and price. Please explain your
calculation.
 Is your answer to (a) also the preferred output for the author? Briefly explain your
answer.
Background
 Since normally only one firm publishes any title, this is a
monopoly situation.
 The monopoly output solution occurs where Marginal Cost
= Marginal Revenue.
 The monopoly maximizes profit where MR=MC
Q7.2 a)
 The publisher wants to set MRp = (1− 0.2) MR equal to Marginal
Cost. Since MR = 600 − 1.2Q, eight-tenths of this is MRp = 480 −
0.96Q.
 Setting MC = MRp , the publisher’s optimum is
 40 + 0.04Q = 480 − 0.96Q
 Q = 440
 P = $336
Q7.2 b)
 Since the author incurs no cost of production, the publisher’s
preferred output, however, is not ideal for the author.
 That is, the author prefers to choose the quantity that
maximizes Revenue without regard to production cost.
Q7.2 b)
 Maximizing sales revenue is an alternative to profit
maximization and occurs when the marginal revenue from
selling an extra unit is zero.
 The author wants to maximize royalty income, which
requires that MR = 600 − 1.2Q = 0.
 The author’s optimum is Q = 500, P = $300.
Q7.2 b)
 It can can be noted that there is a the difference between the
two solutions.
 So, answer to (a) is not also the preferred output for the
author
Thank You!
Q&A

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Econ presentation

  • 1. AF 1605 Introduction to Economics Individual Presentation Question 7.2 Konova Dariia 14108352D
  • 2. Q7.2 Since there is only one publisher of any single textbook, the publisher is a monopoly in each textbook market. Suppose that the demand function for a certain economic textbook is given by P=600-0.6Q in dollars per copy and the corresponding marginal revenue is MR=600-1.2Q. The publisher’s cost of production is TC=50,000+40Q+0.02Q2 and the corresponding marginal cost is MC=40+0.04Q. The author’s royalty is 20 % of total revenue  Determine the publisher’s profit-maximizing output and price. Please explain your calculation.  Is your answer to (a) also the preferred output for the author? Briefly explain your answer.
  • 3. Background  Since normally only one firm publishes any title, this is a monopoly situation.  The monopoly output solution occurs where Marginal Cost = Marginal Revenue.  The monopoly maximizes profit where MR=MC
  • 4. Q7.2 a)  The publisher wants to set MRp = (1− 0.2) MR equal to Marginal Cost. Since MR = 600 − 1.2Q, eight-tenths of this is MRp = 480 − 0.96Q.  Setting MC = MRp , the publisher’s optimum is  40 + 0.04Q = 480 − 0.96Q  Q = 440  P = $336
  • 5. Q7.2 b)  Since the author incurs no cost of production, the publisher’s preferred output, however, is not ideal for the author.  That is, the author prefers to choose the quantity that maximizes Revenue without regard to production cost.
  • 6. Q7.2 b)  Maximizing sales revenue is an alternative to profit maximization and occurs when the marginal revenue from selling an extra unit is zero.  The author wants to maximize royalty income, which requires that MR = 600 − 1.2Q = 0.  The author’s optimum is Q = 500, P = $300.
  • 7. Q7.2 b)  It can can be noted that there is a the difference between the two solutions.  So, answer to (a) is not also the preferred output for the author
  • 9. Q&A