1. A publisher faces the following demand schedule for the next novel of 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. (Recall that 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 this signify?

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

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

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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Price () Quantity demanded 100 90 0 100 000 80 200 000 70 300 000 60 400 000 50 500 000 40 600 000 30 700 000 20 800 000 10 900 000 0 1 000 000