Download Records decides to release an album by the group Mary and the Little Lamb. It produces the album with no fixed cost, but the total cost of downloading an album to a CD and paying Mary her royalty is $6 per album. Download Records can act as a single-price monopolist. Its marketing division finds that the demand schedule for the album is as shown in the accompanying table.
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 total revenue and the marginal revenue per album.
b. The marginal cost of producing each album is constant at $6. To maximize profit, what level of output should Download Records choose, and which price should it charge for each album?
c. Mary renegotiates her contract and now needs to be paid a higher royalty per album. So the marginal cost rises to be constant at $14. To maximize profit, what level of output should Download Records now choose, and which price should it charge for each album?