Based on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD: Demand: P=1,600−10QP=1,600−10Q Total Revenue: TR=1,600Q−10Q2TR

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter14: Pricing Techniques And Analysis
Section: Chapter Questions
Problem 1E
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Based on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD:
Demand: P=1,600−10QP=1,600−10Q
Total Revenue: TR=1,600Q−10Q2TR=1,600Q−10Q2
Marginal Revenue: MR=1,600−20QMR=1,600−20Q
Marginal Cost: MC=400+10QMC=400+10Q
 
where QQ indicates the number of copies sold and PP is the price in Ectenian dollars.
Complete the following table by finding the price and quantity that maximize the company's profit and the price and quantity that maximize social welfare.
Scenario
Price
Quantity
(Dollars)
(DVDs)
Maximizes the company's profit
 
 
Maximizes social welfare
 
 
 
The deadweight loss from the monopoly is
 
.
 
Suppose, in addition to the foregoing costs, the director of the film has to be paid. The company is considering four options:
I. A flat fee of 3,000 Ectenian dollars
II. 50 percent of the profits
III. 150 Ectenian dollars per unit sold
IV. 50 percent of the revenue
 
Complete the following table by finding the price and quantity that maximize the company's profit under each of the following options.
Options
Price
Quantity
Change in Deadweight Loss
(Dollars)
(DVDs)
Flat fee of 3,000 Ectenian dollars
 
 
    
50 percent of the profits
 
 
    
150 Ectenian dollars per unit sold
 
 
    
50 percent of the revenue
 
 
    
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