Sals satellite company broadcasts TV to subscribers in Los Angeles and New York. The demand functions for
Question:
Sal’s satellite company broadcasts TV to subscribers in Los Angeles and New York. The demand functions for each of these two groups are
QNY = 60 - 0.25PNY……………….QLA = 100 - 0.50PLA
where Q is in thousands of subscriptions per year and P is the subscription price per year.
The cost of providing Q units of service is given by
C = 1000 + 40Q
where Q = QNY + QLA.
a. What are the profit-maximizing prices and quantities for the New York and Los Angeles markets?
b. As a consequence of a new satellite that the Pentagon recently deployed, people in Los Angeles receive Sal’s New York broadcasts, and people in New York receive Sal’s Los Angeles broadcasts. As a result, anyone in New York or Los Angeles can receive Sal’s broadcasts by subscribing in either city. Thus Sal can charge only a single price. What price should he charge, and what quantities will he sell in New York and Los Angeles?
c. In which of the above situations, a or b, is Sal better off? In terms of consumer surplus, which situation do people in New York prefer and which do people in Los Angeles prefer? Why?
Step by Step Answer:
a Sal should pick quantities in each market so that the marginal revenues are equal to one another and equal to marginal cost To determine marginal re...View the full answer
