South-Western College Publishing - Economics  
NBC Kills Off 'Homicide'
Subject Profit maximization
Topic Production and Costs
Key Words Value, Cost
News Story

'Homicide, Life on the Street,' a prime-time police drama on NBC for seven seasons, has been canceled for economic reasons. It was never a hit in terms of ratings. This season it lost 2 percent of its viewers, and ranked 60th among prime-time shows. However, it was a critical success, winning accolades from newspaper critics. NBC executives felt that, with 122 shows already completed, it would sell in syndication, and an additional season of 22 episodes would not make much difference to its value, while each episode would cost about $200,000 more than episodes of a new drama series.

Some of the staff on Homicide were devastated by the news. The greatest impact will be on the production crew in Baltimore because 'Homicide' is the only show produced there.

(Updated July 1, 1999)

Questions
1. For NBC, profit maximization requires the comparison of marginal cost and marginal revenue.
  a)What would be the marginal costs of purchasing another season of shows?
  b)What would be the marginal revenues?
  c)Why then does it make sense to cancel the show?
2. For the companies that produced the show, profit maximization is also important.
  a)What would be the marginal costs of producing another 22 episodes?
  b)What would be the marginal revenues?
  c)Does it make economic sense to cancel the show from their perspective?
3. The production crew, like all economically rational people, strive to maximize their net gains from employment.
  a)What are the marginal benefits of producing another season of the show?
  b)What are the marginal costs (the opportunity costs)?
  c)Why are they so upset therefore?
Source Bill Carter, "'Homicide' is Canceled; NBC Cites Economics," The New York Times, May 14, 1999.

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