A comic book company pays an annual licensing fee of $10,000 for the rights to an artist's character. Which would have the bigger effect on the readers of that character's comic: an increase in printing costs or an increase in the artist's licensing fee? Explain.
What will be an ideal response?
Higher printing costs would increase marginal cost, which would lower the profit-maximizing quantity and (assuming demand for the character's comic is downward sloping) raise the price of comic books. The artist's licensing fee is a fixed cost, so an increase in it will not affect marginal cost, quantity produced, or the price charged (unless the increase is so large that it drives the company out of business). As long as the increase in the licensing fee is not excessive, higher printing costs will have the bigger effect because it will raise the price paid by the readers
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