Question

1. A studio produces a popular network that is shown by some cable TV providers. A cable company decides to acquire the studio. Is there a reason to think that this might reduce costs to consumers? Might this also increase costs to consumers? Explain.

Answer 1

Acquiring the studio by the cable company will reduce the costs to customers. This is because when the studio which was producing popular network was a separate company the cost of running that company was high as compared to when it got acquired by the cable company. Here it enjoys the economies of scale (reduced cost due to expansion of a company).

Previously, the customers were paying separate chargers (which were usually high) for that popular network but now when the cable company acquired it, the overall cost that the customers have to pay is reduced.