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Suppose a cable company provides cable service to a small town
Suppose a cable company provides cable service to a small town. The total revenue, marginal revenue, total cost, and marginal cost of providing various quantities of cable subscriptions units in thousands per month are presented in the table below.
| Quantity | Price | Total Revenue | Marginal Revenue | Total Cost | Marginal Cost |
|---|---|---|---|---|---|
| 0 | 102 | $0 | - | 0 | - |
| 1 | 101 | 101 | 101 | 120 | 120 |
| 2 | 100 | 200 | 99 | 180 | 60 |
| 3 | 99 | 297 | 97 | 220 | 40 |
| 4 | 98 | 392 | 95 | 280 | 60 |
| 5 | 97 | 485 | 93 | 440 | 160 |
| 6 | 96 | 576 | 91 | 640 | 200 |
Assume the local cable company is a monopoly. To maximize profits, the monopoly should produce _____ (thousand) units. (Enter a numeric response using an integer.)
At that level output, the company will earn economic profits of $ _____ thousan per month
Expert Solution
The profit maximising level of output is produced at a point where the marginal revenue is equal to the marginal cost.
So the company should produce 4 units of output. This is because there is no unique value where MC equals MR, so the nearest value where the two are equal is MR = 95 and MC = 60.
The economic profit at this level is, profit = total revenue - total cost.
Profit = 392 - 280 = $112.
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