Question

A firm that sells​ e-books - books in digital form downloadable from the Internet​ - sells all​ e-books relating to​ do-it-yourself topics​ (home plumbing,​ gardening, and so​ on) at the same price. At​ present, the company can earn a maximum annual profit of ​$35 comma 000 when it sells 15 comma 000 copies within a​ year's time. The firm incurs a 50​-cent expense each time a consumer downloads a​ copy, but the company must spend ​$150 comma 000 per year developing new editions of the​ e-books. The company has determined that it would earn zero economic profits if price were equal to average total​ cost, and in this case it could sell 30 comma 000 copies. Under marginal cost​ pricing, it could sell 110 comma 000 copies. In the short​ run, to the nearest​ cent, what is the​ profit-maximizing price of​ e-books relating to​ do-it-yourself topics? ​$ nothing. At the​ profit-maximizing quantity, to the nearest​ cent, what is the average total cost of producing​ e-books? ​$ nothing.

Answer 1

Profit maximizing price of the firm = 50 cents

Average total cost of e-book = $10.5

Step-by-step explanation:

As per the data given in the question,

Maximum annual profit = $35,000

It sells = 15,000 copies

Expense rate = 50 cent

Company must spend = $150,000

Here, Profit maximizing price of the firm = marginal cost (Expense rate)

So, Profit maximizing price of the firm = 50 cents

As per the following formula,

Average total cost = Total cost ÷ Quantity of output

= ((0.5 × 15,000) + $150,000) ÷ 15,000

= $10.5