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The Odessa Independent Phone Company (OIPC) is currently engaged in a rate case that will set rates for its Midland-Odessa area customer base. OIPC has
The Odessa Independent Phone Company (OIPC) is currently engaged in a rate case that will set rates for its Midland-Odessa area customer base. OIPC has total assets of $20 million. The Texas Public Utility Commission has determined that an 11 percent return on assets is fair. OIPC has estimated its annual demand function as follows: P = $3,514 $0.08Q Its total cost function (not including the cost of capital) is TC = $2,300,000 + $130Q OIPC has proposed a rate of $250 per year for each customer. If this rate is approved, OIPC will earn a :l percent return on assets. If the commission wants to limit the return on assets to 11 percent, OIPC can either charge V per year for each customer and serve fewer customers than under its proposed rate of $250, or it can charge V per year for each customer and serve more customers than under its proposed rate of $250
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