Table 17-5
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 $200,000 (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 17-5. Assume there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell. How many premium digital channel cable TV subscriptions will be sold altogether when this market reaches a Nash equilibrium?
A)6,000
B)9,000
C)12,000
D)15,000

Question

Table 17-5
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 $200,000 (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 17-5. Assume there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell. How many premium digital channel cable TV subscriptions will be sold altogether when this market reaches a Nash equilibrium?
A)6,000 
B)9,000 
C)12,000 
D)15,000

Quizplus · Accepted Answer

In a Nash equilibrium, each firm will choose its best strategy given the other firm's strategy. In this case, both firms will choose to offer 6,000 premium digital channel subscriptions each, since this yields the highest profit (revenue from 6,000 subscriptions sold minus the fixed cost of $200,000 equals $160,000 in profit). Therefore, a total of 12,000 premium digital channel subscriptions will be sold altogether at the Nash equilibrium.

Table 17-5 The Information in the Table Below Shows the Total Demand