Problem Set #2(1) - Problem Set#2 Economics 180.102 Summer...

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1) A publisher faces the following demand schedule for a popular textbook author. The author is paid $2 million to write the book and the marginal cost of producing the book is $10 per book. (a) Why is a publisher of a textbook a monopolist? (b) What are the returns to scale for the publisher? Draw the approximate MC and ATC curves for this good. (c) Fill in the missing total revenue (TR), marginal revenue (MR), marginal cost (MC), total cost (TC), and profit ( ). Price Quantity TR MR MC TC 100 0 90 10,000 80 20,000 70 30,000 60 40,000 50 50,000 40 60,000 30 70,000 20 80,000 10 90,000 0 100,000 (d) Graph the MR, MC, and Demand Curve. This graph does not need to be precise, i.e. you don't need to label every point. However, label the monpoly equilirium P and Q, as well as the DWL in the market. (e) Calculate the DWL as well as the consumer surplus in this market. (f) If the author was paid $1.5 million (rather than $2 million), how would this affect the publisher's equilibrium P and Q? What about if author was paid $3 million? (g) If you were the author's agent, what fee would you argue for the author to be paid?
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