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 $40.If the cable company is a single-price monopoly,to maximize profit it will sell _____ subscriptions and charge _____ per subscription.
A)8;$20
B)6;$40
C)3;$70
D)2;$80

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 $40.If the cable company is a single-price monopoly,to maximize profit it will sell _____ subscriptions and charge _____ per subscription.
A)8;$20 
B)6;$40 
C)3;$70 
D)2;$80

Quizplus · Accepted Answer

To maximize profit, the cable company should produce where marginal revenue equals marginal cost. In the graph, this occurs where the demand curve intersects with the marginal cost curve at Q = 3. At this quantity, the optimal price is the point on the demand curve above Q = 3, which is approximately $70. Therefore, the cable company should sell 3 subscriptions and charge $70 per subscription to maximize profit.

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