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In Ohio, cable television is a regulated industry. Because it was determined to be a natural monopolist, Chazy Cable, a profit maximizing firm, is...

Cable company and pricing strategies, price discrimination with graph
In Ohio, cable television is a regulated industry. Because it was determined to be a natural monopolist, Chazy Cable, a profit maximizing firm, is the only provider of cable television. Each of Chazy Cable’s consumers has the same demand for cable TV: Q= 160- 200 P, where Q is the number of challenges that a consumer demands and P is the price per channel in dollars. Regulators are considering two possible pricing schemes. The first scheme is to let Chazy Cable set one uniform price. That means that every channel will have the same price. The second schedule will allow channels to be set in blocks. That is, the second schedule would allow the company to charge one price per channel up to a chosen quantity of channels and to charge a lower price for all subsequent channels purchased. Chazy Cable has a constant marginal cost of $.2 per channel and a fixed cost of $5 per consumer. The graph below shows the cable company demand curve, marginal revenue and marginal cost. If Chazy Cable is allowed only one price for all channels, it will choose a price of __________($.20, $.30 $.40,$ .50, $60). And sells _________( 100, 120, 60, 80, 40 channels) to each customer. Chazy Cable profits will be _________________($18, $16, $13, $11, $7) per consumer. Each of Chazy Cables consumers will have a surplus of ______________($18, $25, $9, $16, $4). b. If regulators allow the second pricing scheme, Chazy Cable will choose to charge $0.60 per channel for the first 40 channels and then $.40 for all subsequent channels. Place the black points (x-symbols) on the points (0, 60), (40, 0.60) and (40, 0) in that order. Place the tan points (dash symbol) on the points (40, 0. 40), (80, 0.40) and (80, 0) in that order. Demand curve runs from point (0,.8) to (0,160) MR curve runs from ((0, .8) to (80, 0). Using this pricing scheme, Chazy Cable will sell a total of ________________(120 channels, 40 channels, 80 channels, 60 channels, 50 channels) to each consumer. c. The second pricing scheme that regulators are considering is ____________________ (second-degree price discriminations, third degree price discriminations, first degree price discriminations, a two-part tariff). With this pricing scheme, Chazy Cable profit will be __________($24, $18. $36, $19, $13,$35) per customer per month. Each of Chazy Cable’s consumers will have a surplus of _________($6, $3, $8, $9, $12, $18) per month d. Chazy Cable is better off (meaning makes more profits) when using ___________(uniform pricing, block pricing). Chazy Cable’s consumers are better off when ________________(uniform pricing, block pricing) is used. e. True or False: Under the block pricing scheme, the number of channels sold will be closer to the socially optimal level.
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