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Homework answers / question archive / Suppose a cable company provides cable service to a small town

Suppose a cable company provides cable service to a small town

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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

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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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