A publisher faces the following demand schedule for the next novel from one of its popular authors:

Price Quantity Demanded

$100......... 0 novels

90......... 100,000

80......... 200,000

70......... 300,000

60......... 400,000

50......... 500,000

40......... 600,000

30......... 700,000

20......... 800,000

10......... 900,000

0..........1, 000,000

The author is paid $2 million to write the book, and the marginal cost of publishing the book is a constant $10 per book.

a. Compute total revenue, total cost, and profit at each quantity. What quantity would a profit-maximizing publisher choose? What price would it charge?

b. Compute marginal revenue. (Recall that MR = ΔTR/ΔQ.) How does marginal revenue compare to the price? Explain.

c. Graph the marginal-revenue, marginal-cost, and demand curves. At what quantity do the marginal-revenue and marginal-cost curves cross? What does this signify?

d. In your graph, shade in the deadweight loss. Explain in words what this means.

e. If the author were paid $3 million instead of $2 million to write the book how would this affect the publisher’s decision regarding what price to charge? Explain.

f. Suppose the publisher was not profit-maximizing but was concerned with maximizing economic efficiency. What price would it charge for the book? How much profit would it make at this price?