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 $=60-0\mathrm{.}25$PNY

QLA $=100-0\mathrm{.}50$PLA

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 $=1000+40$Q

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?