The Karaoke Channel Online streams professional-grade karaoke for $9.95 a month. Suppose Karaoke Channel Online has a constant marginal cost of $1 per customer and total fixed cost is $20,000. The profit maximizing number of customers is 10,000. Several competitors start to advertise online. Karaoke Channel Online now spends $5,000 a month on advertising and the profit maximizing number of customers increases to 12,000 and the streaming price remains constant. What is Karaoke Channel Online's total profit after the advertising begins?

Question

Quizplus · Accepted Answer

The total revenue is $9.95 * 12,000 = $119,400. The total cost is $20,000 (fixed cost) + $5,000 (advertising) + $1 * 12,000 (marginal cost) = $35,000. Therefore, the total profit is $119,400 - $35,000 = $84,400.

The Karaoke Channel Online Streams Professional-Grade Karaoke for $9