Hi,

Question

I would really appreciate it if someone could help me with these questions:

An author earns royalties from his book that are specified as 10% of the book's selling price. The demand curve for this is straight and downward sloping.

1. What rule does the author want his publisher to follow in determining how many copies of book to sell?

2. The publisher want to determine how many copies of the book to sell so what rule does he follow?

3. Does the author or the publisher sell more books?

With respect to the price of the book, the author and publisher will act as monopolists. So, start by drawings a demand curve and marginal revenue curve for a typical monopolist.

With respect to book production, the author has no costs, so he/she will want to price the book where his Marginal Cost=Marginal Revenue = 0.

The publisher, at a minimum, has printing costs, as well as a royalty paid to the author. That is, the publisher has positive marginal costs. He too will want to price the buook where his Marginal Cost=Marginal revenue.

With this, you should be able to answer number 3.