The profit-maximizing price of e-books relating to do-it-yourself topics is $5.35 and the average total cost of producing e-books is $4.35.
a. Profit-maximizing price
The maximum that the firm can earn is $35,000 at a quantity of 35,000 copies
Fixed cost FC = $140,000
Variable cost vc=$0.35 per book
Total Revenue TR =P XQ
Total Revenue TR= P x 35,000
Total Cost TC = FC + VC XQ
Total Cost TC = 140,000 + (0.35×35,000)
Total Cost TC = 140,000 +$12,250
Total Cost TC = $152,250
Profit = TR- TE
35,000 = 35,000P- $152,250
35,000P=187,250
P=187,250/35,000 copies
P=$5.35
b. Average total cost
Average total cost=Total cost/Quantity
Average total cost= $152,250/35,000 copies
Average total cost=$4.35
Therefore the profit-maximizing price of e-books relating to do-it-yourself topics is $5.35 and the average total cost of producing e-books is $4.35.
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The complete question is:
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 $35,000 when it sells 35,000 copies within a year's time. The firm incurs a 35-cent expense each time a consumer downloads a copy, but the company must spend $140,000 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 40,000 copies. Under marginal cost pricing, it could sell 120,000 copies.
In the short run, to the nearest cent, what is the profit-maximizing price of e-books relating to do-it-yourself topics?
At the profit-maximizing quantity, to the nearest cent, what is the average total cost of producing e-books?
