Problem
a. Ms. Aura is a psychic. She is not like other psychics in her approach to her clients' problems, so her service is different from that of other psychics. In economic terms, she is a monopolist. The demand for her services can be described by the formula Q = 2,000 - lOP, where Q is the number of I -hour sessions per year and P is the price of one session in dollars. The marginal revenue is MR = 200 - 0.2Q. Ms. Aura's operation has no fixed costs, but she incurs a cost of $ 150 per session (going to the client's house or renting a room for the meeting, finding out about the client; the 0ppOltunity cost of her time, and so on). What is Ms. Aura's yearly profit?
b. Now suppose Ms. Aura becomes famous after appearing on the Psychic Network. The new demand for her services is Q = 2,500 - 5P. Her new marginal revenue is MR = 500 - O.4Q. Note that not only does the demand curve shift to the right as more people want to consult with Ms. Aura, but also it becomes steeper-that is, less elastic-as Ms. Aura sets herself apart from other psychics. What is her profit now?
c. Finally, advances in telecommunications and information technology revolutionize the way Ms. Aura does business. First, she uses the Internet to find all relevant information. Second, she now meets with the clients through teleconferencing. Maintaining this technology involves a fixed cost of $ 1,000 a year, but the marginal cost is only $20 per session. What is Ms. Aura's profit?
d. Could you summarize the lesson of this problem for the superstar phenomenon?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.