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Johnny Rockabilly has just finished recording his latest CD
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: 7-
Price Number of CDs Total revenue Marginal revenue $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 cp. of $5 per CD.
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 be 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?
Expert Solution
b. Quantity of CDs would maximize profit are 50,000. The Price would be $16 and the Profit would be $550,000.
c. Person J should ask for a recording fee of $550,000. This is because it is the maximum profit which can be reaped from the sale of CDs.
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