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...

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.