What is ss profit-maximizing price and quantity

Reference no: EM132198842

Quesiton: 1. Assume the firm SS sells a streaming service for which demand is equal to

P = 1000X

where X is the number of subscribers. The marginal cost of each subscriber is 0. The streaming service offers two television series, show a and show b, for which it must pay royalties to Producers A and B, who hold the copyrights. For simplicity, assume the royalty is paid once for each subscriber. Let ra be the royalty paid to producer A, and rb to producer B. When SS sells its streaming services to X subscribers, it must therefore pay (ra + rb)*X in royalties.

a. What is SS's profit-maximizing price and quantity? (Your answer will be a function of the variables ra and rb.)

b. Assume copyright holders A and B know the answer you solved in part a. Assume further that each believes that the royalty rate it chooses will not influence the other's royalty rate, although it will affect the price that SS charges subscribers. What royalty rate will each producer choose in order to maximize its own profits?

c. What profits will SS make?

d. What is the maximum SS would pay to buy the copyrights from producers A and B? (Hint: What would SS's profits be if it no longer had to pay royalties?) Is a mutually beneficial sale possible?

e. Would such a deal be efficient? How would consumers be affected?

f. What can you can conclude from this problem about the decisions by companies like Netflix and Amazon Prime to produce their own content?

Reference no: EM132198842

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