no marginal cost from additional copies being printed. For the author, MC = zero. The publishers, however, incurs the cost of the paper and the cost of printing and distributing additional copies of the book. For the publisher, MC> zero. In the figure below: D: market demand for the book MR: corresponding marginal revenue curve SMC: fixed (by assumption) marginal cost; it shows the additional cost of printing one additional book. SATC: Average total cost Assume that author's royalties are 12% of sales (total revenue). 1. Publisher's point of view What is the best level of output for the publisher? What price should be charged? How much are the publisher's profits? How much does the author receive in royalties? 2. Author's point of view What is the best level of output for the author? What price should be charged? How much does the author receive in royalties? Compare this result with the answer on question 1. How much are the publisher's profits in this case? Compare this result with the answer on question 1