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Question
The following table shows a small communityu2019s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firmu2019s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the following questions:
| Price/Month (P) | Number of Customers (Q) | Total Revenue/Month (TR) |
| $10 | 0 | $0 |
| 9 | 100 | 900 |
| 8 | 200 | 1,600 |
| 7 | 300 | 2,100 |
| 6 | 400 | 2,400 |
| 5 | 500 | 2,500 |
| 4 | 600 | 2,400 |
| 3 | 700 | 2,100 |
| 2 | 800 | 1,600 |
| 1 | 900 | 900 |
| 0 | 1,000 | 0 |
Listed below are four different collusive agreements that Nextflix and Flixbuster are considering. Assuming both firms will abide by the terms, which collusive agreement(s) would maximize total profit in the market?
I. Nextflix supplies 50 subscriptions and Flixbuster supplies 450 subscriptions.
II. Nextflix supplies 450 subscriptions and Flixbuster supplies 50 subscriptions.
III. Nextflix supplies 300 subscriptions and Flixbuster supplies 100 subscriptions.
IV. Nextflix supplies 100 subscriptions and Flixbuster supplies 100 subscriptions.
a. agreement I
b. agreements I and II
c. agreements II and III
d. agreement III
e. agreements III and IV
Answer
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