Suppose the demand curves for hour-long episodes of the Jerry Springer Show and Masterpiece Theatre are as shown in the following diagram. A television network is considering whether to add one or both programs to its upcoming fall lineup. The only two time slots remaining are sponsored by Colgate, which is under contract to pay the network 10 cents for each viewer who watches the program, out of which the network would have to cover its production costs of $400,000 per episode. (Viewership can be estimated accurately with telephone surveys.) Any time slot the network does not fill with Springer or Masterpiece will be filled by infomercials for a weight-loss program, for which the network incurs no production costs and for which it receives a fee of $500,000. Viewers will receive $5 million in economic surplus from watching each installment of the infomercial.
a. How will the network fill the two remaining slots in its fall lineup?
b. Is this outcome socially efficient?
c. By how much would total economic surplus be higher if each episode of Masterpiece were shown on PBS free of charge than if it were shown by a profit-maximizing pay-per-view network?