Solutions Economics

Below is the demand and cost information for Warmfuzzy Press, which holds the copyright on the new b

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

Quantity (number of copies, in 100,000s)	Price per book	Total Revenue	Marginal Revenue	Total Cost (in millions)	Marginal Cost
1	$100			20

2	80			30

3	60			50

4	40			90

5	20			155

a. Determine the profit maximizing amount of the book Warmfuzzy should print (how many), and what it should charge. Sketch a graph of this company’s costs ATC, MC and the Demand and Marginal Revenue curves they face.

b. What is Warmfuzzy’s maximum profit?

c. Prior to publication, the book’s author renegotiates his contract with Warmfuzzy. He will receive a great big hug from the CEO, along with a 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? At what price? Explain your reasoning.

Price: $2.99

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