Consider the problem of setting a price for a book. The marginal cost of production is constant at $20 per book. The publisher knows from experience that the slope of the demand curve is minus-$0.20 per textbook: Starting with a price of $44, a price cut of $0.20 will increase the quantity demanded by one textbook, or for every dollar the price falls, five more textbooks are purchased. For example, here are some combinations of price and quantity: a. The publisher will choose the profit-maximizing price of $nothing. (Choose the price that comes closest to maximizing profit from the table above.)
|
Price per textbook:
|
$44
|
$40
|
$36
|
$32
|
$30
|
|
Quantity of textbooks:
|
80
|
100
|
120
|
140
|
150
|