e. What is another word for net bene lg uils exaipie You are the manager of a 24

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e. What is another word for net bene lg uils exaipie You are the manager of a 24-hour copy shop that is closed on Sundays. You lease a building for $2,000 per month and hire three employees who each work eight-hour shifts at a wage of $10.00 per hour. The markets for labor and office space are tight in your area. To acquire the lease and hire workers, you signed contracts requiring you to give 12 months advance notice before abandoning your lease or laying off workers (if you fail to comply, the contracts force you to fully compensate your landlord and workers for the income they otherwise would have earned over the 12-month period). Paper costs you S.02 per sheet. You currently sell 500,000 color copies per year at a price of S.10 per copy and 1,000,000 black and white copies per year at a price of S.05 per copy. Because of your high volume, each of your two copiers has a useful life of only one year. You just received a call from an employee who informs you that your color copier just broke down. The good news is that your black and white copier is brand-new; the bad news is that a new color copier will cost $30,000. Should you purchase a new color copier? Assume that customers who want color copies are unwilling to substitute black and white copies. 5. Smith and Wesson have written a new managerial economics book for which they receive royalty payments of 5% of total revenue from sales of the book. Because their royalty income is tied to revenue, not profit, they want the publisher to set price so that total revenue is maximized. However, the publisher's objective i profit. If the total revenue function is TR 100,000Q 10Q2, and the total cost function is TC 10,000+20Q+ Q, determine The output level that will maximize total royalty revenue and the amount of a. royalty income that Smith and Wesson would receive. b. The output level that would maximize profit to the publisher. Based on this level of output, what is the amount of royalty income that Smith and Wesson would receive? Compare the royalty income of Smith and Wesson to that determined in part (a). Page 3

Explanation / Answer

Ans 5)

Total Revenue Maximized when dTR/dQ=0 for some Q*

dTR/dQ=d/dQ(100000Q-10Q^2)=100000-20Q

Q*=5000 will maximize the revenue

Hence TR=100000(5000)-10(5000)^2=250,000,000

Share =15%*250,000,000=250,000*15=$37,500,000

Ans B)

Now we need to maximize the profit

Profit=Revenue-TC=100,000Q-10Q^2-100000-20Q-Q^2

d(Profit)/dQ=100000-20Q-20-2Q=0

22Q=99980

Q*=4544.54

In thid case the royalty amour would be =0.15(100,000Q-10Q^2)=0.15(100,000*4544.5-10(4544,54)^2)=37,188,234

Hence in both cases royalty would not be the same

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