3. Exercise 1.10. Book pricing: Publishers vs. Authors. Consider the problem of setting a price for a book. The marginal cost of production is constant at $20 per book. The publisher knows from experience that the slope of the demand curve is - $0.20 per book: Starting with a price of $44, a price cut of $0.20 per book will increase the quantity demanded by one book. For example, here are some combinations of price and quantity. Price per book Quantity of textbooks $44 80 $40 $36 $32 $30 100 120 140 150 1. What price will the publisher choose? 2. Suppose that the author receives a royaltypayment equal to 10 percent of the total sales revenue from the book. If the author could choose a price, what would it be. 3. Whywould the publisher and author disagree about a price for the book? 4. Designan alternative author-compensation scheme under which the author and thepublisher would choose the same price.
3. Exercise 1.10. Book pricing: Publishers vs. Authors. Consider the problem of setting a price for a book. The marginal cost of production is constant at $20 per book. The publisher knows from experience that the slope of the demand curve is - $0.20 per book: Starting with a price of $44, a price cut of $0.20 per book will increase the quantity demanded by one book. For example, here are some combinations of price and quantity. Price per book Quantity of textbooks $44 80 $40 $36 $32 $30 100 120 140 150 1. What price will the publisher choose? 2. Suppose that the author receives a royaltypayment equal to 10 percent of the total sales revenue from the book. If the author could choose a price, what would it be. 3. Whywould the publisher and author disagree about a price for the book? 4. Designan alternative author-compensation scheme under which the author and thepublisher would choose the same price.
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.13P
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Transcribed Image Text:3. Exercise 1.10. Book pricing: Publishers vs. Authors. Consider the problem of setting a price for a book. The
marginal cost of production is constant at $20 per book. The publisher knows from experience that the slope
of the demand curve is - $0.20 per book: Starting with a price of $44, a price cut of $0.20 per book will
increase the quantity demanded by one book. For example, here are some combinations of price and
quantity.
Price per book
Quantity of textbooks
$44
80
$40
$36
$32
$30
100
120
140
150
1. What price will the publisher choose?
2. Suppose that the author receives a royaltypayment equal to 10 percent of the total sales revenue from
the book. If the author could choose a price, what would it be.
3. Whywould the publisher and author disagree about a price for the book?
4. Designan alternative author-compensation scheme under which the author and thepublisher would
choose the same price.
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