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A firm that sells e-books - books in digital form downloadable from the Internet -sells all e-books relating to do-it-yourself topics (home plumbing
A firm that sells e-books - books in digital form downloadable from the Internet -sells all e-books relating to do-it-yourself topics (home plumbing. gardening so on) at the same price. At present, the company can earn a maximum annual profit of $30,000 when it sells 15,000 copies within a year's time. The firm incurs a 35-cent expense each time a consumer downloads a copy, but the company must spend $150,000 per year developing new editions of the e-books. The company has determined that it would earn zero economic profits if price were equal to average total cost, and it this case it could sell 25,000 copies. Under marginal cost pricing it could sell 105,000 copies.
In the short run, to the nearest cent, what is the profit-maximizing price of e-books relating to do-it-yourself topics? $ _____
At the profit maximizing quantity, to the nearest cent, what is the average total cost of producing e-books? $_____
Expert Solution
1) In the short run, to the nearest cent, what is the profit-maximizing price of e-books relating to do-it-yourself topics? $ 12.35 .
It is because the maximum annual profit is characterized as $30,000 when 15,000 copies are sold.
TR=P×QTR=P×15,000TR=15000PTR=P×QTR=P×15,000TR=15000P
Now, Total cost is characterized as,
TC=$1,50,000+(0.35×15000)TC=$1,50,000+5,250TC=$155,250TC=$1,50,000+(0.35×15000)TC=$1,50,000+5,250TC=$155,250
Now, maximum profit is stated that,
Profit=TR−TC30,000=15,000P−155,250185,250=15000P$12.35=PProfit=TR−TC30,000=15,000P−155,250185,250=15000P$12.35=P
2) At the profit-maximizing quantity, to the nearest cent, what is the average total cost of producing e-books? $ 10.35 .
It is because the Total cost at the profit-maximizing quantity is stated as $155,250. Hence, the average total cost would be,
ATC=TCQATC=155,25015,000ATC=$10.35
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