Answer Happy

Suppose the demand for video programming and distribution (MVPD) is given by Q = 800 - p. AT&T buys programming content from Time Warner. Time Warner's marginal cost of producing content is MC = $200. Let's assume that AT&T has a monopoly in the MVPD market and Time Warner had a monopoly in the content production market. a. If Time Warner charged price pW for its content, so that AT&T's marginal cost of programming is MC" = pw. Find the profit maximizing price that AT&T would charge consumers for its programming. b. What is the derived demand for content that Time Warner faces? C. Find the monopoly price that Time Warner chooses for its content? What is the price of programming? d. Find AT&T's profit, Time Warner's profit, consumer surplus and the total surplus. AT&T's Profit Time Warner's Consumer Surplus Total Surplus Profit e. Now suppose AT&T and Time Warner merge so that the single entity both produces content and delivers programming to subscribers. Find the new price of programming f. What are the profits of the merged firm, consumer surplus and total surplus? Merged Firm's Consumer Surplus Total Surplus Profit g. How does the merger improve efficiency and consumer welfare in the market?