Question of the Day: Day Thirteen

Assume that in the market for cable television here in Louisville, Insight Communications is a monopoly when it comes to regular cable service. Assume further that regular cable service is sold at the same price to everyone, and that the demand curve for cable is a straight line (i.e. linear) as we typically draw in class. For simplicity, assume also that the average and marginal cost of providing cable is a horizontal line (i.e. that Insight has constant MC and AC).

1) Describe how Insight determines what price to set in Louisville, along with how many units of "cable TV service" that Insight hopes to sell?

Note that when a demand curve is linear, the elasticity will change as you move from one point on the demand curve to another point.
2) Given this information about demand curves and elasticity, is it possible for Insight to ever sell at a point on the Market Demand curve where the own price elasticity at that point is less than one in absolute value? Explain.