Question

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?

Answer 1

Answer:

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.