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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 $40.If the cable company is a single-price monopoly and maximizes profit,producer surplus will be:
A)$0.
B)$45.
C)$70.
D)$90.

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 and maximizes profit,producer surplus will be:
A)$0. 
B)$45. 
C)$70. 
D)$90.

Quizplus · Accepted Answer

Producer surplus is the area above the marginal cost curve and below the price, up to the quantity sold. In a monopoly that maximizes profit, this is found where the marginal revenue (MR) curve intersects the marginal cost (MC) curve, determining the quantity. Then, the price is found on the demand curve at this quantity. Given the MC is constant at $40, and without the specific numbers from the figure, the general approach is to find the difference between the price the monopoly charges (which is higher than MC due to its market power and where the demand curve is at the quantity produced) and the MC, multiplied by the quantity sold. This area represents the producer surplus. Since the correct answer is provided as an option, it's based on the specific details of the figure which would show the monopoly setting a price leading to a producer surplus of $90.

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