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Figure: PPV
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $20.If the cable company is a monopoly,what price will it charge?
A)$20
B)$40
C)$60
D)$100

Question

Use the following to answer question:
Figure: PPV 
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $20.If the cable company is a monopoly,what price will it charge?
A)$20 
B)$40 
C)$60 
D)$100

Quizplus · Accepted Answer

As a monopoly, the cable company will maximize profit where MR=MC. Looking at the graph, we can see that MR intersects MC at a quantity of 3 million viewers. At this quantity, we can see that the demand curve intersects the average cost curve at approximately $40. Therefore, the price charged by the cable company would be $60 ($40 x 1.5 markup for monopoly power).

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