A firm sells all of its e-books relating to do-it- yourself topics (home plumbing, gardening, and the
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A firm sells all of its e-books relating to do-it- yourself topics (home plumbing, gardening, and the like) at the same price. At present, the com- pany can earn a maximum annual profit of $25,000 when it sells 10,000 copies within a year's time. The firm incurs a 50-cent expense each time a consumer downloads a copy, but the company must spend $100,000 per year developing new editions of the e-books. Under marginal cost pricing, it could sell 100,000 copies.
a. In the short run, what is the profit-maximizing price of e-books relating to do-it-yourself topics?
b. At the profit-maximizing quantity, what is the average total cost of producing e-books?
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