Question
2) The demand curve for ESPN 8's new streaming service is QD = 27.5 - 1.5P, where Q is measured in 1000s of subscribers. Expect
2) The demand curve for ESPN 8's new streaming service is QD = 27.5 - 1.5P, where Q is measured in 1000s of subscribers. Expect decimal values in this problem. The cost function for this service is C = 5+3Q.
a) Calculate the marginal cost and average total cost functions for this firm. Calculate the firm's marginal revenue as a function of quantity sold.
b) Find the monopoly's profit maximizing output, the price it will charge, and its profit.
c) Draw a graph that includes the demand curve, MR curve, MC and ATC. Label the points that are relevant to 2b, including using the ATC curve to show the monopoly's profit. The ATC curve is different than we're used to thanks to the odd cost function. A hint: MC and ATC don't cross. Using the "grade analogy" here can help you see the shape of ATC (thinking about the ATC function at extreme values of Q can also help).
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