Gouge-em Cable Company is the only cable television service company licensed to operate in Backwater County. Most of its costs are access fees and maintenance expenses. These xed costs total $640,000 monthly. The marginal cost of adding another subscriber to its system is constant at $2 per month.

Gouge-em’s demand curve can be determined from the data in the accompanying table.

a. What price will Gouge-em charge for its cable services?
What are its prots at this price?

b. Now suppose the Backwater County Public Utility Commission has the data and believes that cable subscription rates in the county are too expensive and that Gouge-em’s prots are unfairly high. What regulated price will it set so that Gouge-em makes only a normal rate of return on its investment?

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SUBSCRIPTION PRICE $25 NUMBER OF SUBSCRIBERS (PER MONTH) 20,000 20 40,000 15 60,000 10 80,000 5 100,000 1 150,000