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
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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Question
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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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