Question 2: How much of the market value does the author actually receive?
- Challenge yourself to draw upon outside knowledge to support your assumptions
- Ask your interviewer directed questions if you are unsure with your assumptions
A possible approach to the problem:
Instead of estimating what percentage of the total market value the author receives, which may be a bit arbitrary, we start by breaking down the value chain of a book. We identify how much an author makes per book, then extrapolate to total market value.
The logic for this breakdown comes predominately from personal intuition. We believe that publisher costs, manufacturing costs, and marketing costs make up most of the value of the book. We also assert that authors usually make a small cut of the total value of the book, so $1.50, or 10% of the book value, is reasonable to us, whereas $12 is not.
Using our answer from question 1, we can estimate how much of the total market value the author actually receives.
Estimated amount the author receives: 120,000 x $1.50 = $180,000
The final answer to our second question is the author receives $180,000 from selling his book “Business in China,” which is 10% of the total market value of the book.