Johnny Rockabilly has just finished recording his latest CD. His record company’s marketing department determines that the demand for the CD is as follows:
Price Number of CDs
$24........ 10,000
22........ 20,000
20........ 30,000
18........ 40,000
16........ 50,000
14........ 60,000
The company can produce the CD with no fixed cost and a variable cost of $5 per CD.
a. Find total revenue for quantity equal to 10,000, 20,000, and so on. What is the marginal revenue for each 10,000 increase in the quantity sold?
b. What quantity of CDs would maximize profit? What would the price be? What would the profit be?
c. If you were Johnny’s agent, what recording fee would you advise Johnny to demand from the record company? Why?