A publisher initially prices both hardback books and paperback books at $20 per book. The hardback version comes out first, followed two months later by the paperback version. The publisher initially sells the same number of hardbacks and paperbacks (100 each). Each book costs $2 to produce.
a.Complete the following table. (2 marks)
–
Price
Quantity
Total Revenue
Total Cost
Profit
Hardback
$20
100
Paperback
$20
100
Total
200
b. The price elasticity of demand for hardback (eager) buyers is 0.50, and the price elasticity of demand for paperback (patient) buyers is 2.00.Suppose the publisher increases the price for hardbacks by 10 percent and decreases the price of paperbacks by 10 percent. Complete the following table. (2 marks)
Price
Quantity
Total Revenue
Total Cost
Profit
Hardback
$22
Paperback
18
Total
c. Does price discrimination increase or decrease the publisher’s profit? (1 mark)
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