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Figure: PPV
-(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is a monopoly, what price will it charge?
A) $20
B) $40
C) $60
D) $100

Question

Use the following to answer questions:
Figure: PPV 
-(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is a monopoly, what price will it charge?
A) $20 
B) $40 
C) $60 
D) $100

Quizplus · Accepted Answer

In a monopoly, the firm maximizes profit by setting marginal revenue (MR) equal to marginal cost (MC). Given that MC is constant at $20, the monopoly will find the quantity where MR = $20 and then charge the corresponding price on the demand curve, which is $60.

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