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?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter11: Price And Output Determination: Monopoly And Dominant Firms

Section: Chapter Questions

Problem 3E

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