Rapper Jay-Z has a monopoly over a scarce resource: himself. He is the only person who...

Rapper Jay-Z has a monopoly over a scarce resource: himself. He is the only person who can produce a Jay-Z album. He has just finished recording his latest CD. His record company’s marketing department determines that the demand for the CD is as follows:

Number of CDs	Price
0	$24
3,000	20
6,000	16
9,000	12
12,000	8
15,000	4
18,000	0

The company can produce CD’s with $20,000 fixed cost and a constant marginal cost of $12 per CD.

What price would Jay-Z charge for a CD to maximize profit? How many CDs will be sold at this price? (5 points)
Suppose that the government is concerned with economic efficiency and has the power to regulate prices. What price would the government make Jay-Z charge for the CD? How much profit would Jay-Z make at this price? (10 points)
Graph marginal revenue, marginal cost, demand, and average total cost (ATC). Calculate the size of the deadweight loss. (10 points)
The rap music industry is monopolistically competitive with many artists producing rap albums every year. Given information in the table above, is the industry in the long-run equilibrium? Will this industry experience entry or exit? Will the price of rap albums rise, fall, or stay the same? Briefly explain your answer. (5 points)

Expert Solution

Rahul Sunny answered 2 years ago

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