Gallo Record Company South Africa enjoys an exclusive copyright on music written and produced by the Just Music, a legendary South African music company. Total revenue (TR) and marginal revenue (MR) for the group's CDs are given by the following relations.
TR = R20Q - R0.000006Q2
MR = MTR/MQ = R20 - R0.000012Q
Total Cost (TC) and Marginal Cost (MC) for production and distribution are:
TC = R6,187,500 + R2.5Q +R0,00000275Q2
MC = MTC/MQ = R2.5 + R0.0000055Q
And Q is units (CDs). The total costs include a normal profit.
1. Use the marginal revenue (MR) and marginal cost (MC) relations given above to calculate Gallo Record's CD output, CD price and economic profits at the profit-maximising activity level for the period during which the company enjoys an exclusive copyright on the group's material.
2. Calculate optimal output and profit levels in the period following expiration of copyright protection based on the assumption that a competitive market where P = .75 would result. Is this a stable equilibrium?
3. Discuss the factors affecting the production of compact disk (CD) in any country of your choice.