Theinformationinthetablebelowshowsthetotaldemandforpremium-channeldigitalcableTVsubscriptionsinasmallurbanmarket.AssumethateachdigitalcableTVoperatorpaysafixedcostof$20,000(peryear)toprovidepremiumdigitalchannelsinthemarketareaandthatthemarginalcostofprovidingthepremiumchannelservicetoahouseholdisalways $16.

Quantity Price(peryear)

0 $64

1,000 $56

2,000 $48

3,000 $40

4,000 $32

5,000 $24

6,000 $16

7,000 $8

8,000 $0

1.Supposethereisonlyonedigital companyinthismarketanditseekstomaximizeitsprofit.How many subscriptions will the company sell and what price will it charge?

2.Assumetherearetwoprofit-maximizing digital cable TV companiesthatoperateinthismarket.Iftheyareabletocolludeonthequantityofpremium digital channel subscriptionsthatwillbesoldandonthepricethatwillbechargedforsubscriptions,how many subscriptions will each company sell, what price will each charge, and how much profit will each company earn if they agree to divide the market evenly?

3..Assumetherearetwoprofit-maximizingdigitalcableTVcompaniesoperatinginthismarket.Furtherassumethattheyarenotabletocolludeonthepriceandquantityofpremiumdigitalchannelsubscriptionstosell because of a new anti-trust law that prohibits them from operating as a monopoly, howmanypremiumdigitalchannelcableTVsubscriptionswillbesoldaltogether and what price will be charged when this market reaches a Nash equilibrium?

4.Under the conditions given in Question #3 of this problem, how much profit will each firm earn when this market reaches a Nash equilibrium?

5.What is thesociallyefficientlevelofdigital premium channel subscriptions forthismarketand at what price will each subscription be sold?