Question

Subroto is the city planner in a Bekasi. The city is considering a proposal to award an exclusive
contract to Mata Elang, a cable television carrier. Mr. Subroto has discovered that an economic
planner hired a year before has generated the demand and total cost given below:
P = 11,100 – 30Q
TC = 400,000 + 300Q – 30Q
2 + Q3

where Q = the number of cable subscribers and P = the price of basic monthly cable service.
Conditions change very slowly in the community so that Mr. Subroto considers the cost and
demand functions to be reasonably valid for present conditions. Mr. Subroto knows relatively
little economics and has hired you to answer the questions listed below.
a) What price, quantity and profit would be expected if the firm is allowed to operate
completely unregulated?
b) Suppose you are assigned by Mr. Subroto to conduct a new research. You found that the
new demand is given by P = 28 - 0.0008Q and the new TC is given by TC = 120,000 +
0.00062Q. What is the price and quantity that you recommend to Mr. Subroto in order for
this cable television company to operate in a socially efficient manner?

Answer 1

a)  

This can be solved by equating the marginal revenue and marginal cost from the given inverse demand and total cost functions. I've provided the solution in the figure below.

b)

We follow the similar process, except that the inverse demand curve and the total costs are altered in this case.

Some part has been shown in the second image above. For the rest of the solution, please refer below.

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