Suppose an electric utility provides service to 75,000 customers, pays fixed costs equal to $1,125,000, and...
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Suppose an electric utility provides service to 75,000 customers, pays fixed costs equal to $1,125,000, and has a marginal cost equal to $0.10 per kilowatt-hour. If P represents the consumer’s total bill and Q represents the quantity of electricity consumed, what pricing scheme would maximize efficiency?
Homework Answers
The efficiency is maximized at the level where price = marginal cost. Therefore the efficiency maximizing pricing scheme is charging a price P= MC i.e. P = $0.1 kilowatt per hour.
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Suppose an electric utility provides service to 75,000
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