3. Below is demand and cost information for Warmfuzzy Press, which holds the cop

Question

3. Below is demand and cost information for Warmfuzzy Press, which holds the copyright on the new best-seller Burping Your Inner Child

No. of copies (Q) (per book) P (per book) ATC
100,000 $100 $20
200,000 $80 $15
300,000 $60 $16 2/3
400,000 $40 $22 ½
500,000 $20 $31


A. Determine what quantity of the book Warmfuzzy should print, and what price should charge in order to maximize profit?

B. What is Warmfuzzy's maximum profit?

C. Prior to publication, the book's author renegotiates his contract with Warmfuzzy. He will recieve a great big hug from the CEO, along with one time bonus of 1,000,000 payable when the book is published. This payment was not part of Warmfuzzy's original cost calculations. How many copies should warmfuzzy publish now? Explain your reasoning.

Explanation / Answer

He should produce 300,000 books and sell them at $60. This will produce 18,000,000 revenue and 15,000,000 cost for 3,000,000 profit (this is where marginal revenue = marginal cost). This should not change his decision on how many to produce (300,000) since it is a one time payment and has not effect on marginal revenue or marginal cost.

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