Table 17-3. The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $200,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.

-Refer to Table 17-3.Assume there are two profit-maximizing digital cable TV companies operating in this market.Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell.How many premium digital channel cable TV subscriptions will be sold altogether when this market reaches a Nash equilibrium?
A) 6,000
B) 9,000
C) 12,000
D) 15,000

Question

Table 17-3. The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $200,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.
 
-Refer to Table 17-3.Assume there are two profit-maximizing digital cable TV companies operating in this market.Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell.How many premium digital channel cable TV subscriptions will be sold altogether when this market reaches a Nash equilibrium?
A) 6,000 
B) 9,000 
C) 12,000 
D) 15,000

Quizplus · Accepted Answer

To determine the Nash equilibrium, we need to find the point where neither company has an incentive to deviate from their current strategy. In this case, each company is trying to maximize their profits by choosing the quantity of premium digital channel subscriptions to sell.

Looking at the table, we can see that when one company sells 6,000 subscriptions, the other company will sell 6,000 subscriptions as well, resulting in a total market demand of 12,000 subscriptions. This is the point where neither company can increase its profits by changing its strategy, assuming the other company stays with its current strategy. Therefore, 12,000 premium digital channel cable TV subscriptions will be sold altogether at the Nash equilibrium.