Q1. Essence of case is that in early 1986 a group of British publishers started charging higher prices for their journals in U.S. than in the U.K.. There was not uniform mark-up, and this is not what we would expect. Assume investigation reveals following data regarding relationship between prices for this journal and U.K. and U.S. sales:
Price per Subscription
|
U.K. Subscriptions
|
U.S. Subscriptions
|
$50.00
|
500
|
5500
|
$60.00
|
400
|
5000
|
Furthermore, assume the MC = $20/year whether subscription is sent to U.S. or the U.K., while [fixed] costs of soliciting, editing, and typesetting articles for journal come to $260,000 annually.
a. Using these data, sketch and label the linear U.K. and U.S. demand curves.
b. Compute profit-maximizing price and quantity of subscriptions for U.K. Compute profit-maximizing price and quantity of subscriptions for US. Indicate each on the suitable graph.
c. What are the total profits to Royal Economic Society annually from sale of the journal at these prices?
d. If Royal Economic Society were forced to charge same price to all subscribers, profit maximizing price per subscription would be $85.00. [Take my word for it.] If this is best single price that R.E.S. can get for its journal, what level of output must the R.E.S. plan for next year? What are profits? Describe.
e. Would elimination of differential pricing leave journal readers better or worse off in this case? Describe.