Question

In: Economics

Ad Slots Suppose that the broadcaster knows the demand for ad slots (Q) of a sports...

Ad Slots

Suppose that the broadcaster knows the demand for ad slots (Q) of a sports program is: P = 1030 − 5Q, the marginal cost is given by: MC = 30, and total cost is given by: T C = 30Q.

a) Find the profit-maximizing quantity.

b) Find the profit-maximizing price.

c) Suppose that the league can sell these rights at auction to many broadcasters. Up to how much will the broadcasters bid at the auction?

Expert Solution

Revenue = p*q

revenue= (1030-5q)*q

revenue = 1030q-5q²

marginal revenue =

marginal rvenue= 1030-10q

profit maximisation means

MR = MC

1030-10q=30

10q=1000

q=100

b) putting q in equation we get

p= 1030 - 5*100

p=1030 - 500

p=530

c) broadcasters will bid at the price upto maximised profit

so

total revenue = 530 *100 = 53000

total cost = 30*q = 30 *100 = 3000

so profit max = 53000-3000 = 50000

so they will bid at maximum 50000

Rahul Sunny answered 2 years ago

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