Table 17-4. The information in the table below shows the total demand for high-speed Internet subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $200,000 (per year) and that the marginal cost of providing an additional subscription is always $80.

-Refer to Table 17-4.Assume there are two high-speed Internet service providers operating in this market.Further assume that they are not able to collude on the price and quantity of subscriptions to sell.What price will they charge for a subscription when this market reaches a Nash equilibrium?
A) $120
B) $160
C) $200
D) $240

Question

Table 17-4. The information in the table below shows the total demand for high-speed Internet subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $200,000 (per year) and that the marginal cost of providing an additional subscription is always $80.
 
-Refer to Table 17-4.Assume there are two high-speed Internet service providers operating in this market.Further assume that they are not able to collude on the price and quantity of subscriptions to sell.What price will they charge for a subscription when this market reaches a Nash equilibrium?
A) $120 
B) $160 
C) $200 
D) $240

Quizplus · Accepted Answer

In a Nash equilibrium, each firm chooses the best strategy given the strategy chosen by the other firm. Without collusion, they will undercut each other's prices until they reach a stable point where neither can benefit from changing their price. Typically, this results in a price closer to marginal cost, which is often lower than the monopoly price. In this scenario, $160 is likely the Nash equilibrium price.