MEMO 11

To: Vice President, Marketing

From: Chief Operating Officer

Re: Cable Channel Officer

A number of groups have put pressure on the FCC to mandate that cable companies offer their channels a la carte rather than in bundles. We are opposed to this measure, and will continue to strive to provide channels in bundled tiers. However, we want to be prepared in case we need to offer single-channel pricing.

Using existing marketing research, We were able to calculate an estimated own-price elasticity of demand for a number of our most popular cable channels. Use this information, along with the marginal cost for each channel, to calculate the profit-maximizing price for each of these channels.

Channel Programming cost per subscriber per month Estimated own price elasticity of demand Subscription Price

ESPN $6.15 -1.8 ?

TNT $1.52 -2.1 ?

Disney Channel $1.25 -1.6 ?

Fox News $1.05 -1.9 ?

MSNBC $0.99 -2.4 ?

CNN $0.87 -3.4 ?

Memo hints: Make sure you make an short conclusion. Specifically, given your calculation, what do you find about the relationship between price and marginal cost? What do you find about the relationship between price and elasticity of demand? If you can explain intuitively why you find such relationships, it would improve your conclusion.

PLEASE SOLVE FOR THE MISSING INFORMATION AND WRITE UP CONCLUSION!