Table 16-3
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 $100,000 (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 16-3.Assume that there are two digital cable TV companies operating in this market.If they are able to collude on the price and quantity of subscriptions to sell,what price (P)will they charge,and how many subscriptions (Q)will they sell collectively?
A)P = $40, Q = 12,000
B)P = $60, Q = 9,000
C)P = $80, Q = 6,000
D)P = $100, Q = 3,000

Question

Table 16-3
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 $100,000 (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 16-3.Assume that there are two digital cable TV companies operating in this market.If they are able to collude on the price and quantity of subscriptions to sell,what price (P)will they charge,and how many subscriptions (Q)will they sell collectively?
A)P = $40, Q = 12,000 
B)P = $60, Q = 9,000 
C)P = $80, Q = 6,000 
D)P = $100, Q = 3,000

Quizplus · Accepted Answer

To maximize profits under collusion, the two digital cable TV companies will act as a monopolist and jointly determine the quantity and price to sell. To do this, they will locate the point where their marginal revenue equals their marginal cost, which is zero. Looking at the table, the total quantity demanded at a price of $60 is 18,000, which is the point where MR=MC. Therefore, the two firms will sell 9,000 subscriptions at a price of $60 each.

Table 16-3 The Information in the Table Below Shows the Total Demand