Problem 5 * Monopoly and Price Discrimination: Arcon is a supplier of electricity in Oregon. In the Oregon market, Arcon is not a price taker. In other words, the quantity of electricity supplied by Anson affects the price of electricity in Oregon. The monthly demand for Arcon's electricity in Oregon is given by Q D : 12, 000 1 / 2P, where P is measured in dollars per million kilowatt hours and Q is measured in millions of kilowatt hours. Arcon can produce up to 5 billion kilowatt hours in one month. Arcon has xed costs of $1 million per month. Its marginal cost is constant at $12,000 for each 1 million kilowatt hours supplied. a) Given the demand and cost information above, how much electricity will Arcon supply to the Oregon market? What will be the price of electricity in Oregon? Will the rm produce at capacity (5 billion kilowatt hours)? Illustrate your answer in a diagram. Be sure to indicate the units on each axis, the quantity supplied, and the price in the market. b) Is this level of output Pareto eicient? Briey explain why it is or is not. In California, lawmakers are concerned about the high prices charged for electric power. To address this concern, they are considering the introduction of a cap on the price of electricity at $16,000 per million kilowatts. Because at this price the demand for electricity in California greatly exceeds the supply of electricity in California, the legislation will allow rms from all over the country to sell in California at this (capped) price. c) One Californian legislator argues that if the price is capped at $16,000, then outofstate rms such as Arcon will not sell in California because they sell at higher prices in other states. As a result, the residents of California will suffer severe electricity shortages. Is he right? In other words, will Arcon refuse to supply electricity to the California market? Explain your answer. (:1) If Arcon does supply electricity to the California market, then how many units will it supply? How many units will Arcon supply to the Oregon market? Will Arcon operate at capacity? e) Illustrate the effect of the California legislation on the Oregon market. Indicate the new equilibrium price and quantity in the Oregon electricity market