[Related to Solved Problem 831 Suppose that Comcast has a cable monopoly in Phil

Question

[Related to Solved Problem 831 Suppose that Comcast has a cable monopoly in Philadelphia. The following table gives Comcast's demand and oosts per month for subscriptions to basic cable (for simplicity, we keep the number of subscribers artficialy smal) Price 68 64 Quantity Revenue Cost 256 300 336 28 32 52 38 Buppose the local govemment imposes a 500 per month tax on cable companies. What wil Comcast do? (Assume fised coats equal 560.) A. Comcast shold produce 6 units in the short un and shut down in the long n O B. Comcast should produce 6 units in the short run and in the long un OC. Camcast should shut down in the short run and produce 6 units in the long nun OD. Comcast should shut down inthe short run and in the ong run O E. None of the above Suppose that the flat per-month tax is replaced with a tax on the fm of $4 per cable subber Assume that Comcast wil sel only the quantities listed in the table) To maximize profit, Comcast will sell 5 subscriptions (enter a numeric response using an intege) and charge a price of $ 6 for profts of $ 78

Explanation / Answer

1)B. Q=6 both in short run and in long run. Tax per month will not change the variable cost or marginal cost. Thus ouypiy decision in short run cant be changed.

2)tac of $4 will increase the marginal cost by 4. Thus new equilibrium will be at a point where initial MC+4=MR

Thus to maximise profit Q should be 5 and price =60 and profit=300-204-20=76

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