Question

2. Refer to Table 16-1. Assume that there are two digital cable TV companies operating in this market. If they are able to collude" on price and quantity of subscriptions to sell, what price (P) will they charge, and how many subscriptions (0) will they collectively sell? a. P - $40, Q = 12,000 b. P=$60, Q -9,000 c. P-$80,- 6,000 d. P - $100, Q -3,000

Answer 1

The correct answer is option d. The price will be $100 and quantity = 3000. In a collusion, the price and quantity set is equal to a price and quantity set up by a monopoly firm. And in a monopoly firm scenario, consumer surplus is very less and when price is equal to $100 and quantity is 3000, the consumer surplus will be less than in other options.