Table 17-2
The information in the table depicts the total demand for wireless Internet subscriptions in a small urban market. Assume that each wireless Internet operator pays a fixed cost of $100,000 (per year) to provide wireless Internet in the market area and that the marginal cost of providing the wireless Internet service to a household is zero.

-Refer to Table 17-2.Assume that there are two wireless Internet companies operating in this market.If they are able to "collude" on price and quantity of subscriptions to sell,what price (P) will they charge,and what quantity (Q) of subscriptions will they collectively sell
A)P = $60, Q = 8000
B)P = $90, Q = 6000
C)P = $120, Q = 4000
D)P = $150, Q = 2000

Question

Table 17-2
The information in the table depicts the total demand for wireless Internet subscriptions in a small urban market. Assume that each wireless Internet operator pays a fixed cost of $100,000 (per year) to provide wireless Internet in the market area and that the marginal cost of providing the wireless Internet service to a household is zero.

-Refer to Table 17-2.Assume that there are two wireless Internet companies operating in this market.If they are able to "collude" on price and quantity of subscriptions to sell,what price (P) will they charge,and what quantity (Q) of subscriptions will they collectively sell
A)P = $60, Q = 8000 
B)P = $90, Q = 6000 
C)P = $120, Q = 4000 
D)P = $150, Q = 2000

Quizplus · Accepted Answer

To maximize their joint profits, the two wireless Internet companies would need to collude and act as a monopolist. This means they would jointly maximize their profits by setting price and quantity where marginal revenue equals marginal cost, which is zero in this case. Thus, they would collectively sell the quantity that maximizes their joint profit while charging a price that ensures they both earn positive profits. The optimal price and quantity are found at the point where the total demand equals the quantity produced by the two companies. From the table, we see that the total demand in the market is 12,000. Thus, the two companies would charge a price of $90 and sell a total of 6,000 subscriptions (3,000 each). At this quantity and price, the total revenue for the two companies would be $540,000 ($90 x 6,000 subscriptions). After subtracting the fixed cost of $100,000, their joint profits would be $440,000. Any other combination of price and quantity would result in lower joint profits.

Table 17-2 the Information in the Table Depicts the Total Demand for Demand