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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, how much is consumer surplus when the monopolist maximizes profit?
A) $20
B) $40
C) $80
D) $160

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, how much is consumer surplus when the monopolist maximizes profit?
A) $20 
B) $40 
C) $80 
D) $160

Quizplus · Accepted Answer

When the monopolist maximizes profit, it sets quantity where marginal revenue equals marginal cost. The consumer surplus is the area above the price level and below the demand curve up to this quantity. Given the constant marginal cost of $20, the consumer surplus is calculated based on the difference between the demand curve and the price at this quantity, resulting in $80.

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