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Question One:
The Wise Economists, a top rock band, have just finished recording their latest music album. Their record company's marketing department have determined that the demand for downloads for the album is as follows:
Price
No. of downloads
Total Revenue
Total Cost
Total Profit
Marginal Revenue
Marginal Cost
24
10,000
240,000
50,000
190,000
22
20,000
440,000
100,000
340,000
20
5
30,000
600,000
150,000
450,000
16
18
40,000
720,000
200,000
520,000
12
800,000
250,000
550,000
8
14
60,000
840,000
300,000
540,000
4
The company can produce the album with no fixed cost and a variable cost of €5 per download:
a. Find total revenue for quantity equal to 10,000, 20,000 and so on. What is the marginal revenue for each 10,000 increase in the quantity sold?
b. What quantity of downloads would maximise profit? What would the price and profit be?
Profit is maximized at quantity 50,000 and price of 16. Profit=550,000
c. If you were the Wise Economists' agent, what recording fee would you advise them to demand from the record company and why?
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