Charge of setting the price for commercial advertisements

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Reference no: EM131094885

Suppose you are in charge of setting the price for commercial advertisements shown during Enemies, a top network television show. There is a 60-minute slot for the show. However, the running time for the show itself is only 30 minutes. The rest of the time can be sold to other companies to advertise their products or donated for public service announcements. Demand for advertising is given by: Qd = 30 – 0.0002P + 26V In which Qd = quantity demanded for advertising on the show (minutes), P = the price per minute that you charge for advertising, and V = the number of viewers expected to watch the advertisements (in millions).

a) All your costs are fixed, and your goal is to maximize the total revenue received from selling advertising. Suppose that the expected number of viewers is one million people. How many minutes of advertising will you sell? What price should you charge? What is total revenue?

b) Suppose price is held constant at the value from part (a). What will happen to the quantity demanded if due to PVRs the number of expected viewers falls to 0.5 million? Calculate the “viewer elasticity” based on the change in the expected number of viewers and the corresponding change in the quantity demanded (when compared to the levels of these variables in part (a)). Explain in words what this value means.

Reference no: EM131094885

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