Problem
Gouge-em Cable Company is the only cable television service company licensed to operate in Backwater County. Most of its costs are access fees and maintenance expenses. These fixed costs total $640,000 monthly. The marginal cost of adding another= subscriber to its system is constant at $2 per month. Gouge-em's demand curve can be determined from the data in the accompanying table.
|
Subscription Price
|
Number of Subscribers (per month)
|
|
$25
|
20,000
|
|
20
|
40,000
|
|
15
|
60,000
|
|
10
|
80,000
|
|
5
|
100,000
|
|
1
|
150,000
|
a. What price will Gouge-em charge for its cable services? What are its profits at this price?
b. Now suppose the Backwater County Public Utility Commission has the data and believes that cable subscription rates in the county are too expensive and that Gouge-em's profits are unfairly high. What regulated price will it set so that Gouge-em makes only a normal rate of return on its investment?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.