In the U. S., city governments usually grant a monopoly right to a single cable company to provide cable service to people in that city; i. e., if you want television service to your house delivered through coaxial or fiber-optic cable, there is only one company from which to choose. Our definition of perfectly competitive markets stressed three characteristics: 1) small firms each producing a small percentage of total output, 2) firms produce homogeneous products, and 3) easy entry and exit from the industry. Recent developments in the industry (say, over the past decade) have made the cable market much more competitive. Required:
a. Present an argument why the cable industry may now satisfy each of these three criteria, even despite the obvious government-granted monopoly.
b. Could each firm in this industry with the recent developments face a demand curve that is not perfectly elastic? Explain
c. How profitable will cable service providers be in the long run given these recent developments in the industry? Explain.