pricing per issue approach
Canada Times Monthly is considering two ways of selling monthly print publication. One is to offer it on newstands at given price per issue. The second is to offer it as package of 12 issues for one annual subscription price. Research shows that the publication has 100,000 potential customers who are likely to value six of the twelve issues at $5 per issue and the remaining six issues at $1 per issue.
The magazine has $1 million per year in fixed costs and the marginal cost of printing and distributing the magazine is $0.50 per issue.
1. Under the pricing per issue approach, at what price per issue would Canada times mag maintain its profit and what is the profit?
2. Under pricing per subscription approach, at what annual subscription rate would the mag maximize profits and what is this profit?