Asked by Charley Stinespring on Jul 16, 2024
Verified
(Figure: PPV) Use Figure: PPV.The figure 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,what price will it charge?
A) $20
B) $40
C) $60
D) $100
Marginal Revenue
The additional income earned from selling one more unit of a good or service.
Marginal Cost
The elevated cost of producing an additional unit of a product or service.
Average Cost
The total cost of production divided by the total quantity produced, indicating the cost per unit of output.
- Explore the ramifications of monopoly control on market mechanisms, including the implications for pricing and the quantity of offerings.
Verified Answer
MH
Malina HernandezJul 21, 2024
Final Answer :
C
Explanation :
As a monopoly, the cable company will maximize profit where MR=MC. Looking at the graph, we can see that MR intersects MC at a quantity of 3 million viewers. At this quantity, we can see that the demand curve intersects the average cost curve at approximately $40. Therefore, the price charged by the cable company would be $60 ($40 x 1.5 markup for monopoly power).
Learning Objectives
- Explore the ramifications of monopoly control on market mechanisms, including the implications for pricing and the quantity of offerings.