(Figure: Pay Per View Movies on Xfinity Cable) Use Figure: Pay Per View Movies on Xfinity Cable. The figure shows the demand and marginal revenue curves for on-demand movie rentals on Xfinity Cable. Assume that marginal cost and average cost are constant at $30. If the cable company practices perfect price discrimination, then it will sell _____ movie rentals.

A)4
B)8
C)6

Question

(Figure: Pay Per View Movies on Xfinity Cable) Use Figure: Pay Per View Movies on Xfinity Cable. The figure shows the demand and marginal revenue curves for on-demand movie rentals on Xfinity Cable. Assume that marginal cost and average cost are constant at $30. If the cable company practices perfect price discrimination, then it will sell _____ movie rentals.
(Figure: Pay Per View Movies on Xfinity Cable) Use Figure: Pay Per View Movies on Xfinity Cable. The figure shows the demand and marginal revenue curves for on-demand movie rentals on Xfinity Cable. Assume that marginal cost and average cost are constant at $30. If the cable company practices perfect price discrimination, then it will sell _____ movie rentals. A) 4 B) 8 C) 6 D) 0

A)4 
B)8 
C)6

Quizplus · Accepted Answer

Perfect price discrimination occurs when a firm can charge each individual customer their maximum willingness to pay. In this case, the demand curve represents the maximum willingness to pay for each unit of the movie rental. Therefore, the firm should charge each customer a different price (i.e. perfect price discrimination) such that they purchase up to the point where their willingness to pay equals the marginal cost (which is constant at $30).

Looking at the chart, we see that there are 8 customers willing to buy the movie rental at various prices (i.e. at the intersections between the demand and marginal cost curves). Therefore, the firm will sell 8 movie rentals with perfect price discrimination.