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,how much consumer surplus is there when the monopolist maximizes profit?
A)$20
B)$40
C)$80
D)$160

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,how much consumer surplus is there when the monopolist maximizes profit?
A)$20 
B)$40 
C)$80 
D)$160

Quizplus · Accepted Answer

Consumer surplus is the difference between the price consumers are willing to pay and the actual price they pay for a good or service. In this case, when the monopolist maximizes profit, they will produce the quantity where marginal revenue equals marginal cost, which is at a quantity of 6. At this quantity, the price is $80 and the demand curve shows that consumers are willing to pay up to $100 for the football game. Therefore, consumer surplus is $100 - $80 = $20 per unit, and since 6 units are sold, the total consumer surplus is $20 x 6 = $120. However, since the monopolist charges a price that is above the marginal cost, there is a deadweight loss of producer surplus, which reduces the overall welfare in the market.

Use the Following to Answer Question