1) 4 friends, A,B, C and D have made a documentary about their hockey team. They are thinking of making the movie available for download on the internet, and they can act like a monopolist, if they choose. Each time the movie is downloaded, the them a fee of $4. The friends argue about what price to charge customers per download. The following table shows the demand schedule
Price of Download Quantity of downloads demanded
a) Calculate the TR and MR per download
b) A is proud of the film and wants as many people as possible to download it. What price should he choose? How many downloads will be sold?
c) B wants as much revenue as possible. What price should he choose? How many downloads will be sold?
d) C wants to maximize profit. What price should he choose? How many downloads will be sold?
e) D wants to charge the efficient price. What price should he choose? How many downloads will be sold?
Price of Download Quantity of downloads demanded total Revenue (TR)=price X quantity consumed Marginal Revenue (MR)=∂TR/∂Q
$10 0 $ 0.00 0
$8 1 $ 8.00 -2
$6 3 $ 18.00 -1
$4 6 $ 24.00 -0.666666667
$2 10 $ 20.00 -0.5
$0 15 $ 0 -0.4
b) A should choose a price that maximizes the quantity of downloads sold. The price is 0$ per download. 15 downloads will be made in total.
c) To maximize revenue, B should set the price at $10. At the price he will sell 0 downloads.
d) In order to maximize profits, One should set a price that maximizes total revenue since profits= total revenue-total cost. In this case, price of $4 has the highest revenue of $24. At this price, six downloads will be made.
e) An efficient price is that which neither maximizes consumer welfare nor maximizes revenue. It is a pareto-equlibrium price. From the table, the efficient price is $2. At the price, 10 downloads will be made.