Final answer:
The hyphen in 'well-known author' is used correctly to form a compound adjective describing the author, which is placed before the noun.
Step-by-step explanation:
The sentence 'well-known author is releasing a new book next month' demonstrates correct use of a hyphen. Hyphens are used to join two or more words serving as a single modifier before a noun. In this example, 'well-known' functions as a compound adjective describing the author, therefore it is correctly hyphenated. According to the guideline in section 11.5: Hyphens, if each word works separately to modify a noun, they are not hyphenated. Also, we do not use a hyphen when compound modifiers come after the noun, as seen in Example 2 - 'the author is well known'.