Johnny Rockabilly has just finished recording his latest CD.? His record company’s marketing department determines that the demand for the CD is as follows:
Price____________________Number of CDs
$24_____________________10,000
$22_____________________20,000
$20_____________________30,000
$18_____________________40,000
$16_____________________50,000
$14_____________________60,000
The company can produce the CD with no fixed cost and a variable cost of $5 per CD.
a) Find the 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 quanitity sold?
b) What quanitity of CDs would maximize profit? What would the price be? What would the profit be?
c) If you were Johnny’s agent, what recording fee would you advise Johnny to demand from the record company? Why?
