P = 0.04 – 0.01Q
The resulting marginal revenue function is: MR = 0.04 – 0.02Q
Metro’s marginal cost function is: MC = 0.005 + 0.0075Q
where Q = millions of kilowatt hours and P = the dollars/kilowatt hour.
If the mayor of New Brunswick wants to maximize surplus what price per month should she mandate that Metro charge? How many kilowatt hours will be consumed?
Surplus is maximized where firm is attained equilibrium.
Equilibrium condition: MR = MC
0.04 - 0.02Q = 0.005 + 0.0075Q
0.04 - 0.005 = 0.0075Q + 0.02Q
0.035 = 0.0275Q
Q = 0.035/0.0275
Q = 1.27 millions of kilowatt hours
P = 0.04 - 0.01(1.27)
P = 0.04 - 0.0127
P = 0.0273 kilowatt hours
The Metro Electric Company produces and distributes electricity to residential customers in New Brunswick. The demand for...
The Metro Electric Company produces and distributes electricity to residential customers in New Brunswick. The demand for electricity is given by P = 0.04 – 0.01Q The resulting marginal revenue function is: MR = 0.04 – 0.02Q Metro’s marginal cost function is: MC = 0.005 + 0.0075Q What is the gain in surplus from regulating the Metro’s price and how much is the monopoly worth to Metro (i.e. how much will they spend lobbying the government not to regulate their price)?
Consider the case of The Electric Company which produces electricity in New York State. The average monthly demand curve for the firm can be represented by P=65-Q where Q represents the quantity of electricity produced, in megawatt-hours (mwh) and P is measured in cents. Their marginal costs can be represented by MC=5+0.5*Q. Please provide graphs to accompany your analysis. a. (5 Points) The firm has market power. What price should they charge? How much electricity will they produce? b. (5...
1. Consider the case of The Electric Company which produces electricity in New York State. The average monthly demand curve for the firm can be represented by P=65-Q where Q represents the quantity of electricity produced, in megawatt-hours (mwh) and P is measured in cents. Their marginal costs can be represented by MC=5+0.5*Q. Please provide graphs to accompany your analysis. c. Suppose instead that the firm’s marginal cost curve is more complicated. The firm has two plants. The first plant...