The last episode of the HyperHero saga is exclusively published by SIT press. Th

Question

The last episode of the HyperHero saga is exclusively published by SIT
press. The market demand for it is represented by the function
p (x) = 10 - x
where x represents the number of copies in thousands. Suppose that
the overall cost of selling each copy is $2.

(a) what are the price and the quantity that SIT press chooses in
order to maximize its own prots?
If Janet McLeod, the author, had decided to give free access to her
masterpiece, there would have been free entry in the market and any
publishing house could have printed and sold it.
(b) Assume that the production and distribution technology for all
the new rms is the same as SIT press i.e., each firm bear a cost
of $2 for each copy. Identify the equilibrium price and compute
the equilibrium quantity if a large uncountable number of firms
had entered the market.
(c) Compare the two outcomes at points (a) and (b), and identify the
deadweight loss due to the monopoly power granted to SIT press.

Explanation / Answer

A) MR: 10-2q = 2 q=4 p = 10 - 4 p=6 Monopoly outcome: 1/2*8*8 - 1/2*4*4 = 24 b) 10-q = 2 q = 8 p = 2 Competitive Outcome: 1/2*8*8 = 32 c) DWL = 8

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