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Mangerial Economics - Assignment Example

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When Star Hub won the bid to broadcast the English Premier League, it announced an increase of basic packages from $4 to $24, whilst reducing the price of…
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Mangerial Economics
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Mangerial Economics

Download file to see previous pages... Since sports is an inelastic product, the increase of price for the sports package from $10 to $25 did not have an effect on the quantity demanded. As noted by Gelles and Mitchell (260), although it increases the MC, the fixed costs remain the same.
When we have zero fixed costs, the marginal cost is constant. When StarHub raised the price of the sports package from $7 to $15, the MC remained the same since all cable TV providers pay the content providers a royalty based on the number of subscribers of the content. The increase in content resulted in more subscribers subscribing to the service thus an increase to 504, 000 as at December 2007.
Considering that sports is an inelastic product, an increase in price is unlikely to cause a substantial change in the quantity of demand. Therefore, the change that was relevant to StarHub’s pricing of cable television services was the increase of sports package from $10 to $15 since the marginal cost was low.
The thematic basic packages need to be reduced from $32.95 to $ 22.95 monthly. The price of the sports package need not to be doubled but increased from $7 to $12 so to reduce the marginal costs. Furthermore, the basic packages need to be increased annually by $3. Lastly, being an inelastic product, the sports package need to be increased from $10 to $30 to cater for the initial costs and operational costs. According to Gilles and Mitchell (261), a firm does charge a price that is beyond the marginal ...Download file to see next pagesRead More
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