Question

Please do only hand written work, and graphs as necessary. I will not accept typed solutions and will mark the answer as wrong with poor rating.
If someone can answer all three questions, thumbs up!
thank you.

You are in charge of strategic pricing department for a national electricity company (monopoly). According to past calculations the daily demand for electricity is based on the following equation: Qelectricity = f(Pelectricity Income consumer Pated) According to past research this relationship can be numerically defined as follows: Qelectricity = 500-1000 * Pelectricity + 0.4 * Income consumer - 500 * P 1. Assume that the average consumer income is 10000, the price of electricity is 2, and the price of water is 1. Find the own-price, income, and cross-price elasticities for the average consumer. Discuss your findings. 2. Draw the demand graph for the average consumer (Income=10000) when price of water is 1. State under which conditions the demand is elastic or inelastic or unit elastic. 3. Draw the Marginal Revenue graph for the average consumer (Income=10000, Water Price=1). If the marginal cost of electricity production is constant at 1, what be optimal production level to maximize profits? What will be the price charged to average consumer? Find the Consumer Surplus, Producer Surplus, and Economic Surplus under monopoly. Do the same for competitive market.

Answer 1

Pocoaker Incomne lechily tonsumer SDoRa 000P 5 D0 500-lo00) o(10000) - 5DO(1) g00- 2000 + 4000 - 500 Oumm Poice Elahoy da गह २ (a) 1 000 x2 200 D Owm - frice Elaihery prie eechnioty brings about eual popeshonal chanye t dosanded oclechooy Unit Elaih impyy % chaye h Quanlity brassPrice laty 0.25 - S00 x 2000 Negahire Croes Pce Elauhiory impies hat vates and are complemenis, 17 chane fn pnic of aa elechedy xduces demand for elechrrty y o

Q 4000 l000 e (5) 000 Pe4 4000-2 Pe Io00 TR 4 ча 1000 MR 2at 000 De MRe

MC = L for proft maximizahon MR MC 4-20 000 4000 -2 00 0 3000 Pe4 IO00 Pe= 2.5