Question No. 06

I. TLS Telecom is a telecommunication provider which has the monopoly power in the market. The inverse demand equation of TLS Telecom is = 100 and the total cost function is = 42. Calculate the profit maximizing quantity and the price in the short-run.(07 marks)

II. Suppose that there are only two (02) firms in the market supplying the same product. The long-run average cost of one firm is less than the other firm due to economies of scale. Why is it likely that a single seller will emerge in the long-run? Explain.(05 marks)

III. Octopus Energy is a sole electricity provider in London. Their unit price differs according to the consumption level of electricity units. Accordingly, the company charges a higher unit price if the customers exceed a certain level of electricity consumption.

a. What type of pricing practice is employed by Octopus Energy?(01 mark)

b. Describe the prerequisites that Octopus Energy must meet in order to successfully adopt this pricing strategy.(06 marks)

c. From the perspective of consumers, this pricing practice is preferable than the perfect price discrimination. Do you agree with the statement? Explain your answer with graphical illustrations.(06 marks)

(Total 25 marks)