To reduce reliance on their local electric utility, the city of Mount Washington has decided to build their own municipal power plant. They must now decide what price to charge consumers. After some careful research, you estimate the demand curve for electricity as P = 400 3Q where Q represents the quantity of electricity used per month in mega watt hours. The total cost function for producing electricity is T C = 5000 + 40Q.

a)What is the fixed cost of production? What is the marginal cost of production?

b)How much profit does the city make if it acts as a monopoly?

c) Councilwoman Eliza believes that the city is providing a vital public service, and so should provide electricity without any deadweight loss. To completely eliminate the deadweight loss, what should the price of electricity be? How much electricity will citizens purchase at that price? Will the city make money, break even, or lose money at that price? Explain.

d) Councilman Aaron is not happy with either plan. He does not like the deadweight loss and large profit from monopoly pricing, but is also not happy with the outcome of part (e). Can you suggest some pricing strategies that could reconcile these concerns? (Note: you do not need to calculate any numbers here. Just give a general explanation of an alternative pricing strategy that could work.)