I put this question on the board before. What I am not clear on is if I should consider the $2 million once when I doing the calculations?
Qestion:
A publisher faces the following demand shedule for the next novel of one of its popular authors.
Price________Quantity Demanded
$100_________0
$90__________100,000
$80__________200,000
$70__________300,000
$60__________400,000
$50__________500,000
$40__________600,000
$30__________700,000
$20__________800,000
$10__________900,000
$0___________1,000,000
The author is paid $2 million to write the book, and the marginal cost of publishing the books is a constant $10 per book.
Compute total revenue, total cost, and profit at each quantity.
I understand the $2 millon is a fixed cost. Do I just use it just once or do I use to for the calculations for each quantity?
If I understand your question, you only need the $2 million once. Count the number of books X $10.00 for the publishing cost. Then to determine what he made, gross, compute what he would have made if he sold all the books. Once you have the total cost plus what he was given to write the book, it should be easy to figure out the total profit.
Sra
To calculate the total revenue, total cost, and profit at each quantity, you do not need to consider the $2 million as a fixed cost for each calculation. The $2 million fee paid to the author is a fixed cost incurred regardless of the quantity of books produced and sold. It should be considered when calculating total cost, but only once.
Here's how you can proceed with the calculations:
1. Total Revenue: To calculate total revenue at each quantity, you need to multiply the price by the corresponding quantity demanded. For example, at a price of $100, the quantity demanded is 0, so the total revenue is 0. Repeat this calculation for each price-quantity combination.
2. Total Cost: The marginal cost of publishing each book is $10. So, to calculate the total cost at each quantity, you need to multiply the marginal cost ($10) by the quantity demanded. For example, at a quantity of 100,000, the total cost would be $10 multiplied by 100,000, which gives you $1 million. Repeat this calculation for each quantity.
3. Profit: To calculate profit at each quantity, you subtract the total cost from the total revenue. For example, at a quantity of 100,000, if the total revenue is $9 million and the total cost is $1 million, then the profit would be $9 million - $1 million = $8 million. Repeat this calculation for each quantity.
Remember to consider the $2 million fee as a fixed cost that affects the overall profitability of the project but does not change with the quantity of books produced.
By following these steps, you should be able to calculate the total revenue, total cost, and profit at each quantity demanded in the given demand schedule.