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Professor Kremepuff's New, User-Friendly Textbook Has Just Been Published

question 7

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Professor Kremepuff's new, user-friendly textbook has just been published. This book will be used in classes for two years, after which it will be replaced by a new edition. The publisher charges a price of p₁ in the first year and p₂ in the second year. After the first year, bookstores buy back used copies for and resell them to students in the second year for p₂. (Students are indifferent between new and used copies.) The cost to a student of owning the book during the first year is therefore p₁ - . In the first year of publication, the number of students willing to pay $v to own a copy of the book for a year is 50,000 - 500v. The number of students taking the course in the first year who are willing to pay $w to keep the book for reference rather than sell it at the end of the year is 50,000 - 2,500w. The number of persons who are taking the course in the second year and are willing to pay at least $p for a copy of the book is 30,000 - 500p. If the publisher sets a price of p₁ in the first year and p₂ <= p₁ in the second year, then the total number of copies of the book that the publisher sells over the two years will be

Definitions:

Share Repurchase Agreements

Contracts in which a company agrees to buy back its own shares from shareholders, often to reduce the number of outstanding shares and increase the value of remaining shares.

Tender Offer

A general offer to stockholders to purchase shares at a specified price, usually for the purpose of acquiring a company.

Treasury Shares

Treasury shares are shares that were once part of the float and sold to the public but have since been bought back by the issuing company, reducing the amount of outstanding stock on the market.

Shareholders

Individuals or entities that own one or more shares of stock in a public or private corporation, granting them ownership interests and voting rights.