Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Hi Chegg. Please help me to solve this question. Thank you so much! Question 2 Suppose there are 100 households whose demand for electricity is

Hi Chegg. Please help me to solve this question. Thank you so much!
image text in transcribed
Question 2 Suppose there are 100 households whose demand for electricity is given by Q = 40 - P. The local power company has a constant marginal cost of 2, and a fixed cost of 10,000 (a) Suppose the power company charges a price per unit of electricity that maxi- mizes profits. Determine the price, the demand of each household, and the company's profit (Recall that you must use aggregate demand of all 100 households. Q = 40 - P is the demand of a single household). (b) Now suppose that the power company uses two part pricing. It selects a price P per unit and a fixed fee F that maximizes profit. Determine P. F. and the firm's profit (Now you must use individual demand Q = 40 - P to determine P and F. Of course, in order to determine profits you must use the fact that there are a total of 100 such households.) (e) Determine the efficiency gain from using two-part pricing instead of a price per unit. This efficiency gain is measured by the sum of the following: (a) the change of firm profits; (b) the change of consumer utility (see your class- notes). (d) Now suppose that the government wants to regulate the power company. In particular, the government wants (a) production to be efficient and (b) firm profits to be zero. This objective can be achieved by charging a fixed fee F in addition to a price per unit P. Determine F and P

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: Walter Harrison, Wendy Tietz, C. Thomas, Greg Berberich, Catherine Seguin

7th Canadian Edition

0135433061, 9780135433065

More Books

Students also viewed these Accounting questions

Question

1. The next area, Now we will turn to, or The second step is.

Answered: 1 week ago