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# When a best-selling book was first released in paperback the Hercules Bookstore chain seized a profit opportunity by setting a selling price of \$9 per book

When a best-selling book was first released in paperback, the Hercules

Bookstore chain seized a profit opportunity by setting a selling price

of \$9 per book (well above HerculesA????1 \$5 average cost per book). With

paperback demand given by P = 15 - .5Q, the chain enjoyed sales of

Q = 12 thousand books per week. (Note: Q is measured in thousands

of books.) Draw the demand curve and compute the bookstoreA????1s

profit and the total consumer surplus.

B. For the first time, Hercules has begun selling books onlineA????1in

response to competition from other online sellers and in its quest for

new profit sources. The average cost per book sold online is only \$4.

As part of its online selling strategy, it sends weekly e-mails to

preferred customers announcing which books are new in paperback.

For this segment, it sets an average price (including shipping) of \$12.

According to the demand curve in part (a), only the highest value

consumers (whose willingness to pay is \$12 or more) purchase at this

price. Check that these are the first 6 thousand book buyers on the

demand curve. In turn, because of increased competition, Hercules

has reduced its store price to \$7 per book.

At P = \$7, how many books are bought in HerculesA????1 stores? (Make

sure to exclude online buyers from your demand curve calculation.)

Compute HerculesA????1 total profit. Then compute the sum of consumer

surplus from online and in-store sales. Relative to part (a), has the emergence

of online commerce the welfare of book buyers as a

whole? Explain.

Apr 30 2020 View more View Less