Question

The information in the table below depicts 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. Table 16-1 Price (per year) $120 3,000 $100 6,000 $ 80 9,000 12,000 $ 40 15,000 $ 20 18,000 $ 0 Quantity $ 60 1. Refer to Table 16-1. If there is only one digital cable TV company in this market, what price would it charge for a premium digital channel subscription to maximize its profit? a $40 b. $60 c. $80 d $100

Answer 1

Ans.Correct Option is B.

Quantity(Q)	Price (P)	TR (P x Q )	Total Cost	Profit = TR - TC
0	120	0	100,000	-100,000
3000	100	300,000	100,000	200,000
6000	80	480,000	100,000	380,000
9000	60	540,000	100,000	440,000
12000	40	480,000	100,000	380,000
15000	20	300,000	100,000	200,000
18000	0	0	100,000	-100,000

Hence the highest amount of profit is recieved at a price of $60.

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