posted by Jan on .
Textbook authors typically receive a simple percentage of total revenue generated from book sales. The publisher bears all the production costs and chooses the output level. Suppose the retail price of a book is fixed at $50. The author receives $10 per copy, and the firm receives $40 per copy. The firm is interested in maximizing its own profits. Will the author be happy with the book company's output choice? Does the selected output maximize the joint profits (for both the author and company) from the book?
Take a shot, what do you think?
Hint 1: use a monopoly model
Hint 2: no, yes