John Gardner is the city planner in a medium-sized southeastern city. The city is considering a proposal to award an exclusive contract to Clear Vision, Inc., a cable television carrier. Mr. Gardner has discovered that an economic planner hired a year before has generated the demand, marginal revenue, total cost and marginal cost functions given below:
P = 28 - 0.0008Q
MR = 28 - 0.0016Q
TC = 120,000 + 0.00062
MC = 0.0012Q,
where Q = the number of cable subscribers and P = the price of basic monthly cable service. Conditions change very slowly in the community so that Mr. Gardner considers the cost and demand functions to be reasonably valid for present conditions. Mr. Gardner knows relatively little economics and has hired you to answer the questions listed below.
a. What price and quantity would be expected if the firm is allowed to operate completely unregulated?
b. Mr. Gardner has asked you to recommend a price and quantity that would be socially efficient. Recommend a price and quantity to Mr. Gardner using economic theory to justify your answer.
c. Compare the economic efficiency implications of (a) and (b) above. Your answer need not include numerical calculations, but should include relevant diagrams to demonstrate deadweight loss.

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The Answer of John Gardner is the city planner in a medium-sized southeastern city. The city is considering a proposal to award an exclusive contract to Clear Vision, Inc., a cable television carrier. Mr. Gardner has discovered that an economic planner hired a year before has generated the demand, marginal revenue, total cost and marginal cost functions given below:
P = 28 - 0.0008Q
MR = 28 - 0.0016Q
TC = 120,000 + 0.00062
MC = 0.0012Q,
where Q = the number of cable subscribers and P = the price of basic monthly cable service. Conditions change very slowly in the community so that Mr. Gardner considers the cost and demand functions to be reasonably valid for present conditions. Mr. Gardner knows relatively little economics and has hired you to answer the questions listed below.
a. What price and quantity would be expected if the firm is allowed to operate completely unregulated?
b. Mr. Gardner has asked you to recommend a price and quantity that would be socially efficient. Recommend a price and quantity to Mr. Gardner using economic theory to justify your answer.
c. Compare the economic efficiency implications of (a) and (b) above. Your answer need not include numerical calculations, but should include relevant diagrams to demonstrate deadweight loss.

John Gardner Is the City Planner in a Medium-Sized Southeastern