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Question: merciless cable company is the only provider of cable services...

Question details

Merciless Cable Company is the only provider of cable services in a city. Most of its costs are access fees and maintenance expenses and these are fixed costs, which do not vary with the number of customers and is $760,000/month. The marginal cost of each new subscriber is $1/month. The company’s demand curve is below

Price/month

# of subscribers

Total revenue

Marginal

revenue

Total cost

Pre-regulation total profit

ATC

50

10,000

40

20,000

30

30,000

20

40,000

10

50,000

1

100,000

The local Utility Commission regulates the price of cable services and wants to set the price so that Merciless Cable Company makes a normal rate of return, that is, where the ATC meets the demand curve.

a) How many subscribers at what price if the monopoly is not regulated?

b) What should that new price be and how many subscribers will the station have?

c) Draw the graph of showing the demand curve (# of subscribers and price), ATC, MR,

Hints: complete the table.

Don’t forget: TC1= TC0 + MC*q

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