A firm that sells e-books - books in digital form downloadable fromt the Intemet

Question

A firm that sells e-books - books in digital form downloadable fromt the Intemet -sells all e-books relating to do-it-yourself topics (home plumbing. gardening on) at the same price. At present, the company can eam a maximum an determined that it would ean zero economic profits if price were equal to average total cost, and in this case it could sell 25,000 copiesUnder marginal cost pricing and so time. The firm incurs a time a consumer downloads a copy, but the company must spend $150,000 per year developing new editions of the e-books. The company has it could sell 105,000 copies. In the short run, to the nearest cent, what is the profit-maximizing price of e-books relating to do-it-yourself topics?$ At the profit maximizing quantity, to the nearest cent, what is the average total cost of producing e-books?

Explanation / Answer

1) Solution: $12.35

Working:

For short run profist maximising, MR= MC=0.35

TR-TC= 30000

TR= 15000*P

TC= .35*15000+ 150,000 = 155,250

P = 155,250 + 30,000 / 15000 = 12.35

2) Solution: $10.35

Working:

MR= price= 12.35

ATC=TC/Q= 155,250/15,000 = 10.35

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