Download Records decides to release an album by the group Mary and the Little Lamb. It produces
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Price of album Quantity of albums demanded
$22…………………………….. 0
20…………………………….. 1,000
18…………………………….. 2,000
16…………………………….. 3,000
14…………………………….. 4,000
12…………………………….. 5,000
10…………………………….. 6,000
8…………………………….. 7,000
a. Calculate the total revenue and the 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 charge for each album?
c. Mary renegotiates her contract and now needs to be paid a higher royalty per album. So the marginal cost rises to be constant at $14. To maximize profit, what level of output should Download Records now choose, and which price should it charge for each album?
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