Professor Kremepuff Has Published a New Textbook

question 22

Multiple Choice

Professor Kremepuff has published a new textbook.This book will be used in classes for two years, at which time 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 copies from students for $ p₂/2 and resell them to students in the second year for $p₂.(Students are indifferent between new and used copies.) The cost to a student in the first year of owning the book for a year is therefore $(p₁ - p₂/2) .In the first year of publication, the number of students willing to pay $v to own the book for a year is 70,000 - 1,000v.The number of students taking the course in the first year who are willing to pay at least $w to keep the book for reference rather than resell it is 70,000 - 5,000w.In the second year, the number of students who have not previously taken the course and are willing to pay at least $p for a copy of the book is 60,000 - 1,000p.If the publisher sets a price of $p₁ in the first year and $p₂ in the second year, with p₁ B3 p₂, then the total number of copies that the publisher sells over two years will be equal to

• A)130,000 - 1,000(p₁ + p₂/2).
• B)140,000 - 1,000(p₁ - p₂/2).
• C)140,000 - 1,000p₁ - 1,000p₂.
• D)140,000 - 3,000p₂.
• E)130,000 - 1,500p₂.

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Definitions:

Price Ceiling

A government-imposed limit on how high the price of a product can be, intended to protect consumers from high prices.

Monopolist

A single seller in a market who controls the supply of a product or service, and thus, has significant power to set prices.

Deadweight Loss

The drop in economic productivity happening when the optimal free market balance for a good or service isn't met.

Price Ceiling

A price ceiling is a government-imposed limit on how high the price of a good or service can be charged in the market, usually set below the equilibrium price to ensure affordability of essential goods.