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Econ

Problem Set #3

1. Suppose that a comic book publisher pays an annual licensing fee of $20,000 for the

rights to an artist’s character. Which would have a larger impact on the number of

readers of the comic using this character: (i) an increasing in the printing costs associated

with publishing the comic, or (ii) an increase in the artist’s licensing fee to $22,000.

Please carefully explain your reasoning.

The increase in printing cost would have the larger impact on the number of readers of the comic. Because the increase in printing cost could be thought as a variable cost increase.
The increase in cost would vary when the quantity increases. The increase costs per book could be easily realized and thus the publisher would choose to increase the price of goods.
The number of readers would thus decrease due to increase of selling price.
For the increase in license fee, it would be considered as fixed cost, which is more important in the short run business instead of long run businesses.

2. A firm's total cost schedule and the demand for its product are summarized in the table below

(a) Complete the table and use the tools discussed in the online lecture and in the book to determine the level of output that maximizes the firm's profit.

Costs | Revenues | Quantity
Produced | Total Cost | Marginal
Cost | Quantity
Demanded | Price | Total Revenue | Marginal Revenue | 0 | 0 | - | 0 | 155 | 0 | - | 1 | 70 | 70 | 1 | 150 | 150 | 150 | 2 | 142 | 72 | 2 | 145 | 290 | 140 | 3 | 217 | 75 | 3 | 140 | 420 | 130 | 4 | 297 | 80 | 4 | 135 | 540 | 120 | 5 | 385 | 88 | 5 | 130 | 650 | 110 | 6 | 485 | 100 | 6 | 125 | 750 | 100 | 7 | 603 | 118 | 7 | 120 | 840 | 90 | | | | | | | |
When the marginal cost and marginal revenue are the same, the firm can maximize it’s profit. When the quantity...

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