Suppose that Shaw Communications has a cable monopoly in Vancouver. The followin

Question

Suppose that Shaw Communications has a cable monopoly in Vancouver. The following table gives Shaw's demand and costs per month for subscriptions to basic cable for simplicity, we keep the number of subscribers artificially smaAssume fixed costs equal $60 Marginal Revenue Total Revenue $324.00 416.00 500.00 576.00 644.00 704.00 Total Cost $224.00 292.00 364.00 440.00 520.00 604.00 Marginal Cost Price $108.00 104.00 100.00 96.00 92.00 88.00 Quantity 4 5 6 92.00 84.00 76.00 68.00 60.00 68.00 76.00 80.00 84.00 a. Suppose the local government requires cable companies to pay a license fee of $138 per month. What will Shaw do? ( A. Shaw should shut down in the short run and produce 6 units in the long run B, Shaw should shut down in the short run and in the long run ( C. Shaw should produce 6 units in the short run and in the long run D. Shaw should produce 6 units in the short run and shut down in the long run 0 E. None of the above b. Suppose that the flat per-month tax is replaced with a tax on the firm of $4 per cable subscriber. Now how many subscriptions should Shaw sell if it wants to maximize profit? What price should it charge? What is its profit? (Assume that Shaw will sell only the quantities listed in the table) To maximize profit, Shaw will sellsubscriptions. (Round your response to the nearest whole number.) The price at which Shaw will sell subscriptions to customers is S (Round your response to the nearest dollar.) Shaw will have profits of S(Round your response to the nearest dollar.)

Explanation / Answer

Price = $104 Profits = TR-TC =(416-296)= $120.

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