8. Download Records decides to release an album by the group Mary and the Little Lamb. It produces the album with no fixed cost, but the total cost of creating a digital album and paying Mary her royalty is $6 per album. Download Records can act as a single-price monopolist. Its marketing division finds that the demand schedule for the album is as shown in the accompanying table.
Price of album |
Quantity of albums demanded |
$22 | 0 |
20 | 1,000 |
18 | 2,000 |
16 | 3,000 |
14 | 4,000 |
12 | 5,000 |
10 | 6,000 |
8 | 7,000 |
Calculate the total revenue and the marginal revenue per album.
The marginal cost of producing each album is constant at $6. To maximize profit, what level of output should Download Records choose, and which price should it charge for each album?
Mary renegotiates her contract and will be paid a higher royalty per album. So the marginal cost rises to be constant at $14. To maximize profit, what level of output should Download Records now choose, and which price should it charge for each album?