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1
• You next must consider the costs incurred in providing cable service. The costs are $20 per hookup
per month plus $2000 in maintenance costs. If you charge a price p for cable TV, what are the
costs to you in providing cable TV to every family that demands it? Plot total costs as a function
of the unit price charged.
• You are now ready to go into business (or are you?). The profit from running your cable company
is your total revenue from sales minus the cost to you of providing the service. Express your profit
as a function of the price p you charge for a cable TV hookup. Plot this. You wish to find the price
to charge that will maximize your profit.
• Since your profit function is defined in pieces, the derivative will also be a piecewise-defined function.
Your profit is a continuous function of your price, so the Extreme Value Theorem guarantees that
there is a price that will maximize your profits. Why is it continuous? What are the endpoints for
your maximization problem?
• Solve the maximization problem and determine the price you should charge to maximize your
profits. Display the point of maximum profits on the graph of the profit function.
• At the price you are going to charge for cable TV, how many families in homes are paying for
hookups? How many families in apartments are paying for cable TV?
Going into Politics
Suppose instead of going into business, you are part of the government of the small town that has given
someone the right to provide cable TV. The cable TV company has been in business several years and
has led to some complaints. The biggest complaint has come from people living in apartments. They
complain that the price of a cable TV hookup is so high that they can’t afford it, and they want you
to do something that will allow them to enjoy cable TV as well. The monopolist claims that he must
charge a high price to remain in business but suggests that you allow him to charge different prices to
apartments and homes.
• Suppose the monopolist can charge a price pa to families living in apartments and a price ph to
families living in houses. What pair of prices maximizes profit? How many houses and apartments
are served at these prices?