the demand for cable TV services in a town of 50,000 households. The local government has given a monopoly franchise to a cable company. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for cable TV services. Notice that the firm's monthly marginal cost is constant at $10 per household. Assume that in the long run, the cable company can avoid any fixed costs if it stops providing service in this community.
1. True or False: The firm has no fixed costs.
2. What price and quantity combination will the monopolist choose to maximize profits?
3. How much profit does the monopolist earn each month?
4. Suppose the government forces the cable company to set price equal to marginal cost. In the long run, how many households would the cable company choose to supply at this price?
5. Suppose the government requires that the cable company set price equal to average total cost. That is, the government requires that the company offer service to anyone who wants it at a price equal to the company's average total cost. The government also imposes a fine of $10,000 per month if the cable company stops providing service. In the long run, how many households would have cable TV service under this form of price regulation?
6. Suppose the government requires the cable company to set price equal to average total cost. Which of the following is least likely to occur?