. Download Records decides to release an album by the group Mary and the Little
ID: 1208349 • Letter: #
Question
. Download Records decides to release an album by the group Mary and the Little Lambs. It produces the album with no fixed costs, but the total cost of downloading an album to a CD and paying Mary her royalty is $6 per album. Download Records can act like a single price monopolist. Here’s the demand for the product: Price of album Quantity of albums demanded $22 0 20 1,000 18 2,000 16 3,000 14 4,000 12 5,000 10 6,000 8 7,000 a) Calculate the TR and MR per album. b) The MC of producing each album is constant at $6. To maximize profit, what quantity of albums should they produce? What price should they charge? Draw the relevant curves to illustrate the equilibrium. c) Mary renegotiates their contract and so the MC rises to a new constant of $14. To maximize profit, what quantity of albums should they now produce? What price should they now charge? Draw the relevant curves to illustrate the equilibrium.
Explanation / Answer
AT MC= 6, profit maximizing price will be $10 and 6000 quantity will be produced.
AT MC = 14, profit maximizing price will be $ 12 and quantity will be 5000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.