Answer to Question #114033 in Microeconomics for Aaiza

Question

Thadeus J. Wren and Joshua K. Skimpy have written a new managerial economics textbook: Managerial Economics: Decision Making for the Chronically Confused.The publisher, Nock, Downe & Owt (NDO), Inc., has offered Wren and Skimpy the following contract options: royalty payments amounting to 10% of total revenues 15% of total profits. NDO’s total revenue and total cost functions associated with publishing the textbook are given as
TR = 10,000Q- 5Q2
TC = 10,000 - 20Q+ 5Q2
If we assume that NDO is a profit maximizer, which contract should Wren and Skimpy choose?
b. Would your answer to part a have been different if NDO were a sales (total revenue) maximizer?

Answer 1

Wren and Skimpy should take the NDO contract because the earnings are higher and they will be able to make more profit compared to the other contact.

If the NDO were a sales maximizer I would have advised Wren and Skimpy not to take the contract as it will not make them profits.