Download Records decides to release an album by the group Mary and the Little Lamb. It produces the album with no fixed cost, but the cost of downloading the album to a CD and paying Mary her royalty is $6 per album. Download Records can act as a single-price monopolist. Its marketing division finds that the demand schedule for the album is as shown in the accompanying table:
|
Price of Album
|
Quantity of Albums Demanded
|
TR
|
MR
|
|
$22
|
0
|
|
|
|
$20
|
1000
|
|
|
|
$18
|
2000
|
|
|
|
$16
|
3000
|
|
|
|
$14
|
4000
|
|
|
|
$12
|
5000
|
|
|
|
$10
|
6000
|
|
|
|
$8
|
7000
|
|
|
a) Calculate the Total Revenue and Marginal Revenue per album.
b) The marginal cost of producing each album is constant at $6. To maximize profit what level of output should Download Records choose, and which price should it therefore charge? Explain your answer.