The above figure shows the demand for cable and the cable company\'s cost of pro

ID: 1250686 • Letter: T

Question

The above figure shows the demand for cable and the cable company's cost of providing cable.

a) What price and quantity will be produced if the company is unregulated and profit maximizes?

b) What price and quantity will be produced if the company is regulated using the marginal cost pricingrule?

c) What is the advantage of the marginal cost pricing rule?

d) What price and quantity will be produced if the company is regulated using the average cost pricingrule?

e ) What is the advantage of the average cost pricing rule?

a. Q from intersection of MR and MC, so Q=20. Price from demand curve at Q=20: P=$90.

b. MC intersects D at Q=40 and P=30.

c. Advantages: fully efficient, maximizes consumer surplus.

d. LRAC intersects D at Q = 30 and P=60.

e. Advantages: Increases efficiency, splits surplus between producer and consumer.

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