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Problem 3: Franchise Bidding. The demand for electricity is Q = 50 - P/2. There are three firms who are competing to become the monopolist
Problem 3: Franchise Bidding. The demand for electricity is Q = 50 - P/2. There are three firms who are competing to become the monopolist provider of electricity. The total cost of firm 1 of producing q1 units is TO(q1) = 80q1 - q?, the total cost of firm 2 of producing q2 units is TC2(92) = 70q2 -q3, and the total cost of firm 3 of producing 93 units is TO3(93) = 60q3 - 93. (a) What is the average cost function for each firm? (b) Now consider the franchise bidding problem. Each firm bids the price they will charge for electricity. The lowest bid wins. What is the minimum price that each firm is willing to bid? (c) Which firm wins the franchise, and at what price? (d) Draw a graph that illustrates the problem and its solution
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