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

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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?

Solutions

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

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 1 year ago

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