Economics: Pricing decisions.

Using anticipated sales data, recommend pricing of new tiers

In response to increased requests for a la carte pricing, a firm has decided to start a trial
offering of smaller program tiers. As the first step of the trial, two small program packages will
be offered to those using our basic package. The first is a sports package which includes
NBA TV and the Soccer Channel. The second is a music package that includes MTV2 and
GAC.

The trial offering will be limited to our Region 1 and Region 2 markets only. We estimate that
our relevant incremental costs for the sports package are $1.45 per subscriber and the
incremental costs for the music package are $1.20 per subscriber.

The attached preliminary survey conducted by our marketing team indicates
anticipated sales at various pricing points. What are your recommendations
regarding the pricing of these new program tiers.

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