posted by Jay on .
Suppose that Neptune Music has the copyright to the latest CD of the heavy Iron Band. The market demand curve for the CD is Q=800-100p, where Q represents quantity demanded in thousands and p represents the price in dollars. Production requires a fixed cost of $100,000 and a constant marginal cost of $2 per unit.
a. What price will maximize profits?
b. At that price, what will be the sales?
c. What is the Maximum Profit?
d. Calulate the Lerner Index at the profit-maximizing scale of production.
e. Supppose the fixed cost rises to $200,000. How would this affect the profit maximizing price?