Reference no: EM131334275

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
20	30,000	600,000	150,000	450,000	16	5
18	40,000	720,000	200,000	520,000	12	5
16	50,000	800,000	250,000	550,000	8	5
14	60,000	840,000	300,000	540,000	4	5

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?