Economics: Find total revenue for quantity equal to 10,000, 20000

Economics: Find total revenue for quantity equal to 10,000, 20,000

Subject: Economics    / General Economics
Question
Question One [15 marks]

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?