Football Club decides to create its own website that exclusively streams their games. After doing a little market research they discover that their main audiences are teenage soccer aficionados and baseball-hating urban people.
The demand curves for both these groups are as follows:
Teenage soccer students' demand curve is given by Qteenagers = 300 – 10P.
Baseball hating urban people's demand curve is given by Qurbanites = 150 – 5P.
FC's marginal cost of streaming is constant and equal to $20. There are no fixed costs of production.
a. Suppose FC acts as a simple monopolist by charging anyone who visits the website the same price. What is the price and quantity that maximizes profits? What are FC's profits?
b. Using the aggregate (total) demand curve that you found in a), draw the graph for FC's equilibrium situation. Include the marginal revenue, average revenue and marginal cost curves (with endpoints) and locate the profit maximizing price and quantity and label them.