Book Pricing: Publishers versus Authors. Consider the problem of setting a price for a book. The marginal cost of production is constant at $20 per book. The publisher knows from experience that the slope of the demand curve is $0.20 per book: Starting with a price of $44, a price cut of $0.20 will increase the quantity demanded by one book. For example, here are some combinations of price and quantity
a. What price will the publisher choose?
b. Suppose that the author receives a royalty payment equal to 10 percent of the total sales revenue from the book. If the author could choose a price, what would it be?
c. Why would the publisher and the author disagree about the price for the book?
d. Design an alternative author-compensation scheme under which the author and the publisher would choose the same price.