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Suppose that the demand for electricity by residential consumers is the same for all consumers and is given by P = 1 - Q/100 where
Suppose that the demand for electricity by residential consumers is the same for all consumers and is given by P = 1 - Q/100 where P is the price per kw-hour in $ and Q is the kw-hours per week.
Suppose that the marginal cost of supplying electricity is $0.20 per kw-hour.
- If the electricity company can charge a fixed fee as well as a price per unit, calculate the profit maximizing fee per week, the quantity of kw-hours sold, and the price charged. (Remember the consumer will participate if his consumer surplus is at least zero).
- What is the consumer surplus under the profit maximizing pricing scheme?
- Does this profit maximizing pricing scheme cause any deadweight loss? Explain.
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