Suppose that Media Cable is a single-price monopolist in the market for cable in Anywhere, Iowa. Media has five potential customers: Morgan, Larry, Clyda, Janet, and Tom.
Each of these customers are willing to purchase cable service, but only if the price is just equal to, or lower than, his or her willingness to pay. Morgan's willingness to pay is $130; Larry's, $100; Clyda's, $80; Janet's, $40; and Tom's, $0.
Media Cable's marginal cost per cable package is $40. The demand schedule for cable service packages is shown in the accompanying table.
|
Price of Cable Service
|
Quantity of Cable Service Demanded
|
|
160
|
0
|
|
130
|
1
|
|
100
|
2
|
|
80
|
3
|
|
40
|
4
|
|
0
|
5
|
- Calculate Media Cable's total revenue and its marginal revenue
|
Price of
Cable Service
|
Qty of Cable
Service demanded
|
Total Revenue
|
Marginal Revenue
|
|
$160
|
0
|
|
-
|
|
130
|
1
|
|
|
|
100
|
2
|
|
|
|
80
|
3
|
|
|
|
40
|
4
|
|
|
|
0
|
5
|
|
|
b. Explain why a monopolist, such as Media Cable, faces a downward-sloping demand curve
c. Explain why the marginal revenue from an additional sale is less than the price of the service
d. Suppose Media Cable currently charges $80 for its service. If it lowered the price to $40, how large is the price effect?
e. How large is the quantity effect?
f. What is the profit maximizing quantity and price for Media Cable?