Table 16-3
The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $100,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.

-Refer to Table 16-3.Assume that there are two profit-maximizing digital cable TV companies operating in this market.Further assume that they are able to collude on the price and quantity of premium digital channel subscriptions to sell.As part of their collusive agreement they decide to take an equal share of the market.How much profit will each company make?
A)$40,000
B)$170,000
C)$480,000
D)$540,000

Question

Table 16-3
The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $100,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.
 
-Refer to Table 16-3.Assume that there are two profit-maximizing digital cable TV companies operating in this market.Further assume that they are able to collude on the price and quantity of premium digital channel subscriptions to sell.As part of their collusive agreement they decide to take an equal share of the market.How much profit will each company make?
A)$40,000 
B)$170,000 
C)$480,000 
D)$540,000

Quizplus · Accepted Answer

Each company will make a profit of $170,000. This is because the total profit in the market is $340,000, and the two companies are splitting the profit equally.

Table 16-3 The Information in the Table Below Shows the Total Demand