Suppose Campus Books, a profit-maximizing firm, is the only supplier of the text
ID: 1159422 • Letter: S
Question
Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The table below shows the maximum price of the eight students enrolled in the class.
Student
Maximum Price
($/Book)
Q
60
R
54
S
48
T
42
U
36
V
30
W
24
X
18
If Campus Books knows that customers with a reservation price above $30 never bother with coupons, whereas those with a reservation price of $30 or less always use them, then the bookstore will set the list price of the book to be ______ and the discounted price of the book to be ______.
If Campus Books knows that customers with a reservation price above $30 never bother with coupons, whereas those with a reservation price of $30 or less always use them, then what will be the bookstore’s total economic profit?
Student
Maximum Price
($/Book)
Q
60
R
54
S
48
T
42
U
36
V
30
W
24
X
18
Explanation / Answer
We know that by using a counpon in this situatiob , the bookstore is dividing the market into 2 parts : first submarket consists of students Q though U and the second submarket consists of students V though X .
In the first part , the store will sell 5 books at the price of 36$ each since that is the lowest reservation price ( any price higher than 36 will not allow U to buy the book ) .
And in the second submarket, the bookstore will sell 2 books at a price of $24 each . ( discounted price )
Profit = total revenue - total cost = ( 5* 36 ) + ( 2*24) - ( 10* 7) = 158$
If he sold 3 books at price $18 each in the second submarket then his profit would have decreased to 154$ . So he sells 2 at 24$ .
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