Question

4. Refer to Table 16-1. Assume that there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to "collude" on price and quantity of premium digital channel subscriptions to sell. How many premium digital channel cable TV subscriptions will be collectively sold (by both firms) when this market reaches a Nash equilibrium? a. 3,000 b. 6,000 c. 9,000 d 12,000

Answer 1

Ans. Option c
Total Revenue, TR = Price (P)* Quantity (Q)

=> Marginal Revenue, MR = Change in TR/ Change in Q

Using the above formulas to complete the table, we get,

Q P TR MR 0 120 0 100 3000 6000 9000 100 80 60 300000 480000 540000 60 20 12000 40 480000 -20 15000 20 300000 -60 18000 0 0 -100

At Nash equilibrium, the MR is the last positive value and increase in quantity will make it negative decreasing the total revenue. So, the quantity at equilibrium is 9000 units at a price of $60.

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