The above figure shows the demand for cable and the cable ...

[dmcintosh]

The above figure shows the demand for cable and the cable company's cost of providing cable.
 
  a. What price and quantity will be produced if the company is unregulated and profit maximizes?
  b. What price and quantity will be produced if the company is regulated using the marginal cost pricing rule?
  c. What is the advantage of the marginal cost pricing rule?
  d. What price and quantity will be produced if the company is regulated using the average cost pricing rule?
  e. What is the advantage of the average cost pricing rule?

Question 2

Jack had an accident that caused a damage of 4,200 to his car. He had to pay 500 for repair while his insurer paid the remaining amount. Why do insurance companies have such policies?
 
  What will be an ideal response?

[tsternbergh47]

Answer to Question 1

a. The price will be 90 per month and the quantity will be 20,000 households.
b. The price will be 30 per month and the quantity will be 40,000 households.
c. This rule results in the efficient level of production.
d. The price will be 60 per month and the quantity will be 30,000 households.
e. This rule results in the firm making a normal profit.

Answer to Question 2

Car insurance companies often do not pay the full cost of repair when the policy buyers have accidents. Such practices help in reducing the problem of moral hazard that may otherwise arise. If the insurers pay the full amount required for repair, drivers are more likely to drive recklessly and have accidents because they do not have to pay for the damage.