Question

Scenario 15-8 Mega Media Cable TV is able to purchase an exclusive right to sell a premium sports channel in its market area. Let's assume that Mega Media pays $100,000 a year for the exclusive marketing rights to the sports channel. Since Mega Media has already installed cable to all of the homes in its market area, the marginal cost of delivering the sports channel to subscribers is zero. The manager of Mega Media needs to know what price to charge for the sports channel service to maximize her profit. Before setting price, she hires an economist to estimate demand for the sports channel. The economist discovers that there are two types of subscribers who value premium sporting channels. First are the 3,000 die-hard sports fans who will pay as much as $150 a year for the new channel. Second, the premium sports channel will appeal to 20,000 occasional sports viewers who will pay as much as $25 a year for a subscription to it. Refer to Scenario 15-8. How much profit will Mega Media Cable TV earn if it sets the price at $25

Answer 1

Answer:

Net profit= 475000

Explanation:

Giving the following information:

Scenario 15-8 Mega Media Cable TV can purchase an exclusive right to sell a premium sports channel in its market area.

Fix cost= $100,000

Price= $25

Occasional sports viewers= 20000

Hardcore sport viewers= 3000

Revenues= 23000*25= $575000

Fix cost= (100000)

Net profit= 475000