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

Price Quantity Demanded

$100 0

90 100 000

80 200 000

70 300 000

60 400 000

50 500 000

40 600 000

30 700 000

20 800 000

10 900 000

1. 1 000 000

The author is paid $2 million to write the book, and the marginal cost of publishing the book is a constant $10 per book. /12

1. 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 thatMR = TR/Q.) 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?