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10 March, 17:19

Suppose the objective of San Francisco's Municipal Authority (the cable caroperator) is to maximize its revenues. i) What is the revenue-maximizing price? ii) Do you think maximizing revenues makes sense? Under what conditionmight this be equivalent to profit maximization?

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  1. 10 March, 17:21
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    i. The revenue-maximizing price is where the marginal income (MI) is equal to marginal cost (MC) ii. Maximizing revenue only makes sense when a natural monopoly exists.

    Explanation:

    In this case, since the San Francisco's Municipal Authority is the only operator of the cable, it is understood it has the monopoly of this activity; hence, it has sense to maximize revenue. In a monopoly, maximizing revenue is the same as maximizing profits. Under perfect competition, the companies are price-takers; therefore, they cannot maximize price, they only can take the price and identify production levels that maximize profits.
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