Related to So ved Problem? #3 small) Suppose that Comcast has a able mono in Phi
ID: 1103630 • Letter: R
Question
Related to So ved Problem? #3 small) Suppose that Comcast has a able mono in Philadelphia. The following table gives Comcast's demand and sts per th for subscriptions o basic cable or simplicity. we keep the number of subscribers artificially Marginal Revenue Total Cost 144 172 Quantity Marginal Cost Revenue 204 256 64 28 38 28 20 52 324 Suppose the local government imposes a $98 per month tax on cable companies What will Comcast do? (Assume fixed costs equal $60) A. Comcast should shut down in the short run and in the long run. B. Comcast should shut down in the short run and produce 6 units in the long run. C. Comcast should produce 6 units in the short run and shut down in the long run. D. Comcast should produce 6 units in the short run and in the long run. E. None of the above. Suppose that the flat per-month tax is replaced with a tax on the firm of 54 per cable subscriber. (Assume that Comcast will sell only the quantities listed in the table) To maximize profit, Comcast will sell subscriptions (enter a numeric resoonse using an integer) and charge a price of S60for profits of $ 76Explanation / Answer
Concast is a monopoly. The profit of the monopolist is maximised when its Marginal revenue=marginal cost.
Here, according to the above table, the profits of the comcast are maximised when it produces 6 units, here MR=MC=$36
at this point, the profit= Total revenue-total cost
=336-240
=$76
so, when the tax of $98 is imposed, then the firm will have to exit in the long run as tax is even higher than the profit. Thus, option c is correct.
when $4 per unit tax is imposed, the MC of the firm at each quantity will increase. When firm produces 5 units, MC is 36, MR is closest to MC, MR>MC. Thus, firm will produce 5 units.
profit =total revenue -total cost-20(tax of $4 on 5 units)
=300-204-20
=$76 profit
The firm will charge price =$60 at this point