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Scenario: A Small-Town Monopolist
A monopolist sells cable subscriptions in a small town and finds that it can sell 100 subscriptions when the price is $15 a week and an additional 75 subscriptions when the price is $10 a week. The MC for the provision of the cable is $5 a week. There are no fixed costs.
-(Scenario: A Small-Town Monopolist) Look at the scenario A Small-Town Monopolist. If the company is allowed to offer different prices for its good, what is the maximum amount of profit this company can earn?
A) $1,000
B) $750
C) $1,375
D) $1,520

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Quizplus · Accepted Answer

The monopolist can price discriminate by charging $15 for the first 100 subscriptions and $10 for the next 75. Total revenue is (100 x $15) + (75 x $10) = $1,500 + $750 = $2,250. Total cost is (175 x $5) = $875. Profit is $2,250 - $875 = $1,375.

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