A publisher faces the following demand schedule for the next novel from one of its popular authors:

A publisher faces the following demand schedule for the next novel from one of its popular authors:

The author is paid $2 million to write the book, and the marginal cost of publishing the book is a constant $10 per book.

a.      Compute total revenue, total cost, and profit at each quantity. What quantity would a profit-maximizing publisher choose? What price would it charge?

b.     Compute marginal revenue (MR=ΔTR/ ΔQ). How does marginal revenue compare to the price? Explain.

c.      Graph the marginal-revenue, marginal cost, and demand curves. At what quantity do the marginal-revenue and marginal-cost curves cross? What does it signify?

d.     In your graph, shade in the deadweight loss. Explain in words what this means.

e.     If the author were paid $3 million instead of $2 million to write the book, how would this affect the publisher’s decision regarding what price to charge?

f.       Suppose the publisher was not profit-maximizing but was concerned with maximizing economic efficiency. What price would it charge for the book? How much profit would it make at this price?

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