Answer to Question #287142 in Economics for Ali

Question

Hoot Washington is the newly elected leader of the IN US. Media Publishers is negotiating to publish Hoot’s Manifesto, a new book that promises to be an instant best-seller. The fixed costs of producing & marketing the book will be $500,000. The variable costs of producing and marketing will be $4.00 per copy sold. These costs are before any payments to Hoot. Hoot negotiates an up-front payment of $3 million, plus a 15% royalty rate on the net sales price of each book. The net sales price is the listed bookstore price of $30, minus the margin paid to the bookstore to sell the book. The normal bookstore margin of 30% of the listed bookstore price is expected to apply.

1. Prepare a PV graph for Media Publishers.

2. How many copies must Media Publishers sell to (a) break even and (b) earn a target operating income of $2 million

Answer 1

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