Managerial Economic - Assignment # 2 Example | Topics and Well Written Essays - 250 words

Managerial Economic - # 2 - Assignment Example The basic cable TV was unbundled into thematic bundles. This might have resulted into cutting cost by the company reducing operational expenses thus decreasing the cost of production while offering less channels to the public decreasing demand (Hubbad & Glen, 2008). As a result of the low subscriber base and low cost of production, the company had no choice but to reduce prices of the cable TV so as to remain in the market and be competitive. Due to high amount of the fixed costs and operations expenses, star hub should adjust their prices upwards so as to compensate for the high amount of the invested capital which may be used for expansionary activities and keeps the organization going (Krugman & Robin, 2006). Marginal cost is the extra amount that the company spends on the acquisition of the extra channels. Thus every channel is acquired at an extra cost to meet the company’s objectives. It is only logical that prices are raised so as to factor in the extra amount spend by the company (Krugman & Robin, 2006). An increase in costs functions results into higher prices reducing demand as shown above, while a decrease in cost of production lowers prices increasing demand. This is due to the inverse relations between cost and