The Following Table Shows a Small Community's Demand for Monthly

question 49

Multiple Choice

The following table shows a small community's demand for monthly subscriptions to a streaming movie service.Assume that only two firms (Nextflix and Flixbuster) sell in this market,that each firm offers the same quality of service and movie selection,and that each firm's marginal cost is constant and equal to 0 (zero) due to excess capacity.Use this information to answer the following questions:

-If this market were highly competitive instead of a duopoly,the market price would be __________ and the quantity of streaming movie subscriptions purchased each month would be __________.

• A) $0; 1,000
• B) $2; 800
• C) $4; 600
• D) $6; 400
• E) $8; 800

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Definitions:

Dual-Class Shares

Sometimes created by a firm to meet special needs and circumstances. Generally, when special classifications of stock are used, one type is designated “Class A,” another as “Class B,” and so on. For example, Class A might be entitled to receive dividends before dividends can be paid on Class B stock. Class B might have the exclusive right to vote.

Voting Control

The power held by a shareholder or group of shareholders who possess a sufficient number of voting shares to influence or direct the management and decisions of a company.

Constant Growth DCF Model

A method of valuing a company using the theory that its stock is worth the sum of all its future cash flows, discounted back to their present value at a constant growth rate.

Perpetual Preferred Stock

A type of preferred stock with no fixed maturity date, where dividends must be paid by the company before dividends are paid to common stockholders.