Accounting

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Description

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
$10 0
$8 1
$6 3
$4 6
$2 10
$0 15

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?

Solutions
Microeconomics
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.