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March 30, 2017

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Is it correct that if the marginal cost in the following question is zero, then the total revenue and profit would be same?

If I am correct I picked B $60 for the answer to the question.

The table depicts the total demand for premium channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operation 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.

Quantity--- Price

0--- ---------$120
3,000---------$100
6,000---------$80
9,000---------$60
12,000--------$40
15,000--------$20
18,000--------$0

If there were only one digital cable TV company in this market, what price would it charge for a premium digital subscription to maximize its profits?

A. $40
B. $60
C. $80
D. $100

  • Microeconomics - ,

    Profit is total revenue minus 100,000 fixed cost of premium channels.

    The monthly charge that maximizes revcenue maximizes profits. Just multiply the numbers in the quantity and price columns for revenue. The maximum occurs at a $60 price. You are correct about that.

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