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Figure: PPV
-(Figure: PPV) Look at the figure PPV, which 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 $20. If the cable company is a monopoly, how much is total surplus when the monopolist maximizes profit?
A) $240
B) $160
C) $100
D) $320

Question

Use the following to answer questions:
Figure: PPV 
-(Figure: PPV) Look at the figure PPV, which 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 $20. If the cable company is a monopoly, how much is total surplus when the monopolist maximizes profit?
A) $240 
B) $160 
C) $100 
D) $320

Quizplus · Accepted Answer

The total surplus in a monopoly is the sum of consumer surplus and producer surplus. When the monopolist maximizes profit, it sets marginal revenue equal to marginal cost. The total surplus is the area under the demand curve above the marginal cost line up to the quantity where MR=MC. Given the constant marginal cost of $20, the total surplus is calculated as $240.

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