An online streaming company, Netflicks, has invested $100,000 in servers. The resale value of those servers is $70,000 if they never operate, and $0 if they operate. The marginal cost is $0. If they operate, the profit-maximizing price is $10, corresponding to a lifetime quantity of 6,000. O Netflicks should operate, because the marginal revenue is equal to the marginal cost. O Netflicks should operate, because the marginal cost is zero. Netflicks should not operate, because they would be better off by selling their servers. ONetflicks should not operate, because their sunk cost is $100,000. Netflicks should not operate, because the variable profits are less than $100,000.

An online streaming company, Netflicks, has invested $100,000 in servers. The resale value of those servers is $70,000 if they never operate, and $0 if they operate. The marginal cost is $0. If they operate, the profit-maximizing price is $10, corresponding to a lifetime quantity of 6,000. O Netflicks should operate, because the marginal revenue is equal to the marginal cost. O Netflicks should operate, because the marginal cost is zero. Netflicks should not operate, because they would be better off by selling their servers. ONetflicks should not operate, because their sunk cost is $100,000. Netflicks should not operate, because the variable profits are less than $100,000.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter10: Prices, Output, And Strategy: Pure And Monopolistic Competition

Section: Chapter Questions

Problem 8E

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