Destiny cable has market power in the cable television market in particular locality. The demand curve for Destiny’s output is Qd = 10 - 0.4P P = 23 - 2.5Q Destiny's marginal revenue function is MR(Q) = 25 – 5Q. Destiny's marginal cost curve is MC(Q) = 0.53 + 0.026Q. a) Determine Destiny's profit maximizing price. b) Calculate Destiny's elasticity of demand at this price. Is demand for cable TV elastic, inelastic or unit elastic? c) Given the computed elasticity of demand, if Destiny wants to maximize profit, should it increase, decrease, or leave unchanged its current price? Why?
Destiny cable has market power in the cable television market in particular locality. The demand curve for Destiny’s output is Qd = 10 - 0.4P P = 23 - 2.5Q Destiny's marginal revenue function is MR(Q) = 25 – 5Q. Destiny's marginal cost curve is MC(Q) = 0.53 + 0.026Q. a) Determine Destiny's profit maximizing price. b) Calculate Destiny's elasticity of demand at this price. Is demand for cable TV elastic, inelastic or unit elastic? c) Given the computed elasticity of demand, if Destiny wants to maximize profit, should it increase, decrease, or leave unchanged its current price? Why?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Destiny cable has market power in the cable television market in particular locality.
The
Qd = 10 - 0.4P
P = 23 - 2.5Q
Destiny's marginal revenue function is MR(Q) = 25 – 5Q. Destiny's marginal cost curve is MC(Q) = 0.53 + 0.026Q.
a) Determine Destiny's profit maximizing
b) Calculate Destiny's
c) Given the computed elasticity of demand, if Destiny wants to maximize profit, should it increase, decrease, or leave unchanged its current price? Why?
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