Compute total revenue, marginal revenue, total cost.
Monopoly - A publisher faces the following demand schedule for the next novel by one of its popular authors:
|
Price
|
Quantity Demanded
|
|
$100
|
0
|
|
$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 a book is a constant $10 per book.
(a) Calculate total revenue, marginal revenue, total cost and profit at each quantity. What quantity would a profit-maximizing publisher choose? What price would it charge?
(b) Draw the demand, marginal revenue and marginal cost curves for the publisher. Show the profit-maximizing level of output and price
(c) Shade in the deadweight loss caused by monopoly pricing and output and explain in words what it means. (Hint: if you do part (d) first it may help you.)
(d) Suppose the publisher was not interested in profit maximizing but was concerned with maximizing economic welfare (i.e., determining price and output as if the market was a competitive market). What price would the publisher charge and how much profit would the publisher make?