Use the following to answer questions:
Figure: Pricing Strategy in Cable TV Market I
-(Figure: Pricing Strategy in Cable TV Market I) Look at the figure Pricing Strategy in Cable TV Market I. If the two firms in the cable TV market collude:
A) both firms advertise, and each earns $100,000 per month.
B) neither firm advertises, and each earns $150,000 per month.
C) CableNorth advertises and earns $130,000 per month, while CableSouth does not advertise and earns $70,000 per month.
D) both firms advertise and each earns $130,000 per month.

Question

Use the following to answer questions:
Figure: Pricing Strategy in Cable TV Market I 
-(Figure: Pricing Strategy in Cable TV Market I) Look at the figure Pricing Strategy in Cable TV Market I. If the two firms in the cable TV market collude:
A) both firms advertise, and each earns $100,000 per month. 
B) neither firm advertises, and each earns $150,000 per month. 
C) CableNorth advertises and earns $130,000 per month, while CableSouth does not advertise and earns $70,000 per month. 
D) both firms advertise and each earns $130,000 per month.

Quizplus · Accepted Answer

If the two firms in the cable TV market collude, they will choose the strategy that maximizes their joint profits. In this case, the strategy that maximizes their joint profits is to not advertise. This is because advertising is a costly activity, and it does not increase the total demand for cable TV. Therefore, by not advertising, the two firms can save money and increase their profits.

Use the Following to Answer Questions