Question

Price Hikes and Cable TV Revenue. Four years ago, the cable television company in your area increased its price by 29 percent. As a result, its total revenue increased. Last year, a new company started providing television service using satellite dishes. This year the cable company increased its price by 29 percent, but its total revenue fell. This is likely the result of which of the following? O A. Four years ago, demand for television service was inelastic due to a lack of available substitutes. O B This year, demand for television service is elastic due to the presence of an available substitute. OC. Demand facing an individual store is generally more elastic than demand facing the entire industry. O D. All of the above are correct.

Answer 1

The correct answer is 'Option D'.

Four years ago, there was not enough substitutes for television service were available in the market. So, even after an increase in price the total revenue increased because people were paying higher prices due to inelastic demand.

This year, there is an additional company provides television services. So, when the company increased the price for television services by the same margin, the people move to the other service provider for connection as a result of which the total revenues of the company fall.

The demand faced by the individual store is more elastic than the demand faced by the entire industry as the demand faced by the individual store is more affected by the change in prices.

So, the correct answer is 'Option D'.