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: Cengage Learning
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Question
Chapter 15, Problem 1.5CE
To determine
To find: Whether multiyear fee for service is applicable or not.
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FRONT PAGE
Pricing Disney+
Disney decided it wanted to provide streaming services directly to customers, rather than
renting its library of films and television shows to other streaming services like Netflix. But
how successful would a streaming service be? In other words, what did the demand for a
"Disney+" streaming service look like? Disney knew that the number of subscribers would
depend not just on the attractiveness of the Disney archives, but also on the subscription
price. After doing some market research, Disney decided to launch Disney+ at a price of
$6.99 a month (or $69.99 per year). When Disney+ was launched on November 12, 2019,
10 million people signed up on the first day-a resounding success!
Source: News reports, October-December 2019.
Suppose Disney+ changes its monthly subscription price from $7 to $9 per month. Graphically show the impact of this price change in
the following markets:
a. Popcorn, pizza, and other movie snacks
Monopolistic competition creates inefficiency because of the markups and excess capacity. The graph below
depicts the situation for a hypothetical monopolistically competitive firm. The curves included in the graph
are demand (D), marginal revenue (MR), average total cost (ATC), and marginal cost (MC). The graph is not
graded, but you can move the point labeled P to help you find the numeric values to answer the questions.
Price $
80
MC
M
45
P
D
ATC
Quantity
What is the size of the markup on the price?
Number
$0
What is the size of the excess capacity?
Number
Units
Please type your NUMERICAL answer in the space below. ENTER ONLY THE NUMBER. IF answers are in decimals,
please round the number to one decimal point.
Winterfell Cable TV pays $100,000 per year to earn exclusive rights to air a premium sports channel. There are two types
of subscribers in Winterfell: 3,000 die-hard sports fans who will pay as much as $200 a year for the new channel and
20,000 occasional sports viewers who will pay as much as $25 a year for a subscription to it.
a)
If Winterfell Cable is unable to price discriminate, what price will it charge and how much are its profits?
Price
Profits=
b)
If Winterfell Cable is able to price discriminate, how much will it make in profits?
Profits=
What is the deadweight loss associated with the nondiscriminating pricing policy compared to the price
c)
discriminating policy?
DWL=
Chapter 15 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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