Third Problem Professor Bong has just written the first textbook in Punk Economi

Question

Third Problem Professor Bong has just written the first textbook in Punk Economics. It is called Up Your Isoquant. Market research suggests that the demand curve for this book will be Q = 2, 000 100P, where P is its price. It will cost $1,000 to set the book in type. This setup cost is necessary before any copies can be printed. In addition to the setup cost, there is a marginal cost of $4 per book for every book printed. 1. What is the total revenue function for Professor Bong’s book? 2. What is the total cost function for producing Professor Bongs book? 3. What is the profit-maximizing quantity of books for professor Bong to sell?

Explanation / Answer

Q=2000-100P or, P=20-0.01Q

Cost of typing (FC) = $1000

MC = 4

Thus, TVC = 4Q

1)

TR = PQ = (20-0.01Q)Q = 20Q-0.01Q2

2)

TC = FC+VC = 1000+4Q

3)

Profit maximization occurs where MR=MC

From TR function, calculate MR = 20-0.02Q

MC = 4

Thus, at profit maximization, MR=MC

Or, 20-0.02Q = 4

16 = 0.02Q

Q*=800

P*=20-0.01(Q*) = 20-0.01(800)

P*=$12

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.