Question

Comcast has a monopoly in Davis for anyone who likes very high speed broadband.

Demand for Comcast’s broadband internet in Davis is q(p) =250−p where p is the monthly price of broadband and q is the number of households who will subscribe to their broadband at that price. Comcast’s costs are largely the infrastructure costs of laying coaxial cable in the ground; once installed, the operating costs are low. Let Comcast’s cost function be C(q) =10q+4000.

(e) Why did Comcast’s fixed costs play no role in determining the price?

Answer 1

Answer : e) Comcast is a monopolist. In case of monopoly at profit maximizing output level MR (Marginal Revenue) = MC (Marginal Cost) occur. This is the profit maximizing condition for monopoly.

Total cost = Variable cost + Fixed cost. And Marginal cost comes from only variable cost. There is no need of fixed cost to get marginal cost.

Given, C(q) = 10q + 4000

Formula of MC = C(q) / q . So,

=> MC = 10.

Now based on this MC and MR we get q and by putting the value of q in demand function we get the price level p.

As we get q based on MR and MC, and as MC comes from only variable cost and as by putting q in demand function we get price p, hence there is no need of Comcast's fixed cost to determine the price level.