Black Box Pay TV Is Able to Purchase an Exclusive

Black Box Pay TV is able to purchase an exclusive right to sell a premium movie channel (PMC) in its market area. Black Box pays $150 000 a year for the exclusive marketing rights to PMC. Since Black Box has already installed satellite dishes to all of the homes in its market area, the marginal cost of PMC to subscribers is zero. The manager of Black Box needs to know what price to charge for the PMC service in order to maximise her profit. Before setting the price, she hires an economist to estimate the demand for the PMC service. The economist discovers that there are two types of subscribers who value premium movie channels. First are the 4000 diehard TV viewers who will pay as much as $150 a year for the new PMC premium channel. Second, the PMC channel will appeal to about 20 000 occasional TV viewers who will pay as much as $20 a year for a subscription to PMC.
-According to the information provided, if Black Box Pay TV is able to price discriminate, what will be the maximum amount of profit it can generate?

A) $500 000
B) $850 000
C) $875 000
D) $975 000

Correct Answer:

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