An electric utility is going to use a block-pricing schedule. They plan to charge P₁ for the first Q₁ units and P₂ for the subsequent units. The Q₂ units sold at P₂ are the total units sold, Q_T, minus Q₁, the number of units sold at P₁. The inverse demand curve is P = $100 - Q, and the marginal and average cost is $40.

a) Calculate the profit-maximizing prices and quantities under block-pricing, P₁, P₂, Q₁, Q₂, and Q_T.

b) Calculate the consumer surplus and the producer surplus under block-pricing.

c) Calculate the profit-maximizing price and quantity under uniform linear pricing of a monopoly, and the corresponding welfare.

d) Calculate the competitive equilibrium price and quantity, and the corresponding welfare, assuming that perfectly competitive producers have the same production cost. Is this a plausible assumption? Why or why not?

Ans & Explanations for b), c), and d).