ECON201 Study Guide - Midterm Guide: Demand Curve, Economic Equilibrium, Inferior Good

A medium-sized city is considering offering exclusive rights to Cablenet, a cable television carrier.

The demand function for cable in this city is P= 28-0.0008Q;

The resulting marginal revenue function is MR = 28 -0.0016Q;

Cablenet's marginal cost function is MC= 0.0012Q.

(Where Q = the number of cable subscribers and P = the price of basic monthly service.

1. If Cablenet has exclusive rights, how much will they charge per month? How many people will subscribe at this price?

2. If the mayor of this city wants to maximize surplus, what price per month should they mandate that Cablenet charge? How many people will subscribe at this price?

3. What is the gain in the surplus from regulating the Cablenet's price?

4. How much is the monopoly worth to Cablenet (i.e. how much will they spend lobbying the government not to regulate their price)?

The government of Catalina Island is currently inviting investors to bid for the exclusive right to provide cable television service to its residents. The market demand for this service is P = 55 - 0.01Q, where Q is the number of households that would subscribe to the cable service and P is the monthly fee charged to the subscribers. The associated marginal revenue curve is MR = 55 - 0.02Q. Universal Entertainment is interested in bidding for the right to provide cable service on Catalina Island. It has a constant average and marginal cost of $15 for providing cable service to each household

a. If Universal Entertainment were to be awarded the exclusive right to provide cable service on Catalina Island, how many households would it serve? What price would it charge per household per month?

b. If Universal Entertainment were to be awarded the exclusive right to provide cable service on Catalina Island, how much profit would it earn?

c. What is the most Universal Entertainment would bid for the franchise?

d. At what level of output (number of households) is Universal Entertainment's total revenue maximized?

The government of Catalina Island is currently inviting investors to bid for the exclusive right to provide cable television service to its resident. The market demand for this service is P=55-0.01Q, where Q is the number of households that would subscrie to the cable service and P is the monthly fee charged to teh subscribers. The associated marginal revenue curve is MR=55-0.02Q. Universal Entertainment is interested in bidding for the right to provide cable service on Catalina Island. It has a constant average and marginal cost of $15 for providing cable service to each household.

a. if universal were to be awarded the excluse right to provide cable, how many households would it service? what price would it charge per household per month?

b. if they were to be awarded, how much profit would it earn?

c. what is the most universal entertainment would bid for the franchise?

d. at what level of output (numer of households) is uniersal entertainment's total revenue maximized?--- this is the one I really need help with. I think I have figured out the rest where Q=2,000 P= $35, profit= $40,000, and would bid $40,000... I can't figure out how to do this one part. Is it MR=MC and solve for Q? because that just gets me back to 2,000 or am I missing something more. Thank you for any assistance.