Answer
a) The publisher could print either 400,000 or 500,000 novels, as the profit is the same at both printing levels (18,000,000 dollars). If the publisher prints 400,000 novels, the price would be 60 dollars. If the publisher prints 500,000 novels, the price would be 50 dollars.
b) As marginal revenue falls, the price falls as well.
c) The marginal cost and marginal revenue curves intersect at 10 dollars, so the publisher should print novels until 500,000 novels are printed (since the marginal revenue from the 500,000th novel is 10 dollars).
d) The deadweight loss is the surplus forfeited by consumers and the monopolist. This happens since the monopolist produces a quantity less than the efficient quantity.
e) The change would solidify the choice of 500,000 novels at a price of 50 dollars.
f) The price would be set at 10 dollars.
Work Step by Step
a) Please see the upper table. The table shows the total revenue, the total cost, and the total profit at each quantity.
b) Please see the upper table. Marginal revenue is the last column in the table.
c) Please see the left graph. The marginal revenue and marginal cost curves intersect at 10 dollars.
d) Please see the right graph. The monopolist's quantity is determined by where the marginal revenue and marginal cost curves intersect. However, the efficient quantity is determined by where the demand curve and the marginal cost curve intersect.
e) Please see the lower table. The total revenue is lowered by 1,000,000 dollars for each level of output. Revenue is still maximized at either 400,000 or 500,000 novels, as the profit is the same at both printing levels (17,000,000 dollars). If the publisher prints 400,000 novels, the price would be 60 dollars. If the publisher prints 500,000 novels, the price would be 50 dollars. However, since the publisher is a monopolist, the monopolist will produce until the marginal revenue is the marginal cost. This happens when the price is 50 dollars (the marginal revenue of 10 dollars is the same as the marginal cost of 10 dollars). Thus, 50 dollars is the monopolist's optimum price, and 500,000 units is the monopolist's optimum quantity.
f) The price would be 10 dollars since that is the marginal cost of the book. The publisher would incur a loss of however much is being paid to the author.
