question archive Gouge-em Cable Company is the only cable television service company licensed to operate in Backwater County
Gouge-em Cable Company is the only cable television service company licensed to operate in Backwater County
Subject:EconomicsPrice:2.87 Bought7
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.
Complete the following table by computing the total revenue, total cost, and profit at each of the various subscription prices.
| Subscription Price | Number of Subscribers | Total Revenue | Total Cost | Profit |
|---|---|---|---|---|
| (Per Month) | ||||
| $25 | 20,000 | |||
| 20 | 40,000 | |||
| 15 | 60,000 | |||
| 10 | 80,000 | |||
| 5 | 100,000 | |||
| 1 | 150,000 |
Gouge-em will charge for its cable services, earning them a profit of.
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?
1. $5
2. $10
3. $15
4. $20
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Answer:
Total revenue (TR) = Price (P) * Quantity (Q)
Total cost (TC) = fixed cost (FC) + variable cost
= FC + (2 * Q)
Profit = Total revenue - Total cost
| Price ($) | Quantity | Total revenue | Fixed cost | Total cost | Profit |
| $25 | 20,000 | $500,000 | $640,000 | $680,000 | -180,000 |
| 20 | 40,000 | 800,000 | 640,000 | 720,000 | -80,000 |
| 15 | 60,000 | 900,000 | 640,000 | 760,000 | 140,000 |
| 10 | 80,000 | 800,000 | 640,000 | 800,000 | 0 |
| 5 | 100,000 | 500,000 | 640,000 | 840,000 | -340,000 |
| 1 | 150,000 | 150,000 | 640,000 | 940,000 | -790,000 |
Gouge-em will charge $15 (Profit is highest at this price), earning a profit of $140,000.
To earn Normal return only, profit should be zero. This holds true when price is $10 .
