Say that Kevin recorded a song with his band that took him years to write and pu

Question

Say that Kevin recorded a song with his band that took him years to write and put together and it is a dream come true to finally have it in a form that he can share with everyone. Since it will not render additional costs to share the mp3 file of the song, he thinks he should generously give it away at no cost to anyone who might enjoy it. His band members, however, disagree and insist that they should charge a fee for each download of the song. Do you agree with Kevin or his band members?

Explain thoroughly using the concept of different types of costs in the area of microeconomics.

Explanation / Answer

When kevin plans to sell the mp3 free of cost , the band will not earn any profit but only MC will increase with every additional mp3 that they give out .Without earning from this they will have to bear additional cost which is not economical for the band . But if they go by the members ideas they can easily cover the MC of producing more and more MP3 files . With every download there MR(marginal revenue ) increases and the band will be able to maximise profit and cover their MC with a fall in AC.

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