Suppose] A Cmpany is the sole provider of electricity in the various districts of Dubai. To meet the monthly demand for electricity in these districts, which is given by the inverse demand function: P = 1,200 − 4Q, the company has set up two electric generating facilities: Q1 kilowatts are produced at facility 1 and Q2 kilowatts are produced at facility 2;        where Q = Q1 + Q2.       The costs of producing electricity at each facility are given by C1(Q1) = 8,000 + 6Q1 C2(Q2) = 6,000 + 3Q2 + 5Q22   Calculate the profit maximizing output levels of each factory? What is the profit maximizing level of price?  What is the maximum profit?

Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter24: Price-searcher Markets With High Entry Barriers
Section: Chapter Questions
Problem 13CQ
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[Suppose] A Cmpany is the sole provider of electricity in the various districts of Dubai. To meet the monthly demand for electricity in these districts, which is given by the inverse demand function: P = 1,200 − 4Q, the company has set up two electric generating facilities:

  • Q1 kilowatts are produced at facility 1 and
  • Q2 kilowatts are produced at facility 2;

       where Q = Q1 + Q2.

      The costs of producing electricity at each facility are given by

  • C1(Q1) = 8,000 + 6Q1
  • C2(Q2) = 6,000 + 3Q2 + 5Q22

 

  1. Calculate the profit maximizing output levels of each factory?
  2. What is the profit maximizing level of price? 
  3. What is the maximum profit? 
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