Question

Johnny rockabilly has just finished recording his latest cd. his record company's marketing department determines that the demand for the cd is as follows: price number of cds $24 10,000 22 20,000 20 30,000 18 40,000 16 50,000 14 60,000 the company can produce the cd with no fixed cost and a variable cost of $5 per cd.
a. find total revenue for quantity equal to 10,000, 20,000, and so on. what is the marginal revenue for each 10,000 increase in the quantity sold?
b. what quantity of cds would maximize profit? what would the price be? what would the profit be?
c. if you were johnny's agent, what recording fee would you advise johnny to demand from the record company? why?

Answer 1

a. P | Q | TR | MR | TC | pi 24 10,000 240,00 -- 50,000 190,000 22 20,000 440,000 20 100,000 340,000 20 30,000 600,000 16 150,000 450,000 18 40,000 720,000 12 200,000 520,000 16 50,000 800,000 8 250,000 550,000 14 60,000 840,000 4 300,000 540,000 b.Profits are maximized at a price of $16 and quantity of 50,000. At that point profit is $550,000. c. As Johnny's agent, you should recommend that he demand $550,000 from them, so he instead of the record company receives all of the profit.