Question
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
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?
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