Table 17-2
The information in the following table shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16.

$$\begin{array} { | c | c | }
\hline \begin{array} { c }
\text { Quantity Demanded } \
\text { (Internet radio } \
\text { sub scriptions) }
\end{array} & \begin{array} { c }
\text { Price } \
\text { (Dollars per subscription } \
\text { per year) }
\end{array} \
\hline 0 & 64 \
\hline 500 & 60 \
\hline 1,000 & 56 \
\hline 1,500 & 52 \
\hline 2,000 & 48 \
\hline 2,500 & 44 \
\hline 3,000 & 40 \
\hline 3,500 & 36 \
\hline 4,000 & 32 \
\hline 4,500 & 28 \
\hline 5,000 & 24 \
\hline 5,500 & 20 \
\hline 6,000 & 16 \
\hline 6,500 & 12 \
\hline 7,000 & 8 \
\hline 7,500 & 4 \
\hline 8,000 & 0 \
\hline
\end{array}$$
-Refer to Table 17-2. Assume there are two profit-maximizing internet radio providers operating in this market. Further assume that they are not able to collude on the price and quantity of subscriptions to sell. How many subscriptions will be sold altogether when this market reaches a Nash equilibrium?
A)2,000
B)3,000
C)4,000
D)5,000

Question

Table 17-2
The information in the following table shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16.
​
​
 $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Quantity Demanded } \
\text { (Internet radio } \
\text { sub scriptions) }
\end{array} & \begin{array} { c } 
\text { Price } \
\text { (Dollars per subscription } \
\text { per year) }
\end{array} \
\hline 0 & 64 \
\hline 500 & 60 \
\hline 1,000 & 56 \
\hline 1,500 & 52 \
\hline 2,000 & 48 \
\hline 2,500 & 44 \
\hline 3,000 & 40 \
\hline 3,500 & 36 \
\hline 4,000 & 32 \
\hline 4,500 & 28 \
\hline 5,000 & 24 \
\hline 5,500 & 20 \
\hline 6,000 & 16 \
\hline 6,500 & 12 \
\hline 7,000 & 8 \
\hline 7,500 & 4 \
\hline 8,000 & 0 \
\hline
\end{array}$$ ​
-Refer to Table 17-2. Assume there are two profit-maximizing internet radio providers operating in this market. Further assume that they are not able to collude on the price and quantity of subscriptions to sell. How many subscriptions will be sold altogether when this market reaches a Nash equilibrium?
A)2,000
B)3,000
C)4,000
D)5,000

Quizplus · Accepted Answer

In a Nash equilibrium, each firm chooses the best strategy given the strategies chosen by other firms. Given the marginal cost of $16, both firms will aim to sell subscriptions at a price where they can cover the marginal cost and contribute to the fixed cost. The table shows that at a price of $16, the quantity demanded is 6,000 subscriptions. With two firms in the market and assuming they split the market evenly (due to the inability to collude and assuming similar competitive strategies), each would sell 3,000 subscriptions, making the total 6,000. However, this scenario overlooks the initial premise of the question, which is to find the Nash equilibrium quantity sold altogether, not the demand at the marginal cost price. The correct interpretation involves understanding that each firm will act to maximize its profit given the actions of the other firm, leading to an equilibrium where the quantity sold by each firm is such that neither can profitably alter its output decision while taking the other firm's output as given. This equilibrium is not directly discernible from the given table without additional information on the firms' strategic interactions and how they impact the market price and quantity. Therefore, the explanation provided initially misinterprets the question's requirement to identify a Nash equilibrium outcome based on strategic interaction rather than merely matching the marginal cost to the demand table. The correct answer should reflect an understanding of Nash equilibrium in the context of competitive strategies and market outcomes, which typically requires analysis beyond matching costs to a demand schedule.

Table 17-2 the Information in the Following Table Shows the Total

Table 17-2
the Information in the Following Table Shows the Total