You are in charge of selling advertising minutes for a major television broadcas

Question

You are in charge of selling advertising minutes for a major television broadcast on your network, say the Superbowl. Minutes are sold at a constant price per minute that you set. There are 90 minutes that might be sold, no more. If you do not sell all 90 minutes, then you will use those minutes that are unsold to advertise your network’s TV shows. Your network tells you that the marginal value of each minute of advertising its own shows is $100,000. Describe the circumstances under which it is profit maximizing to sell all the 100 minutes and when it is not. In the latter case, clarify what would be the optimal number of minutes sold. (Hint: The demand for advertising minutes is quite relevant!)

Explanation / Answer

Since you have not given demand curve we have to rely on whatever data is given. It is profit maximising to sell all units if marginal value of each minute sold is greater than marginal cost which here is 100000. The optimal number of minutes sold is where marginal value of advertising is equal to 100000

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