The Metro Electric Company produces and distributes electricity to ntial customers in the metropolitan area. This company is a monopoly and faces the following se) demand: P = 0.04 – 0.01Q, Q is the quantity and P is the price per unit. Its cost function is: C(Q) = 0.005Q + 0.00375Q². %3D ) What is the firm's marginal cost function? What is the firm's marginal revenue function? Find the equilibrium price and quantity. ) Illustrate graphically the equilibrium price, quantity, consumer surplus, and producer surplus. ) Compute the equilibrium consumer surplus and producer surplus. Compute the deadweight loss of this monopoly. ) Now a new competitor, Western Light, with constant marginal costs MCe = 0.025 can ntontially ontor the markot What can Eloctric tain markot?
The Metro Electric Company produces and distributes electricity to ntial customers in the metropolitan area. This company is a monopoly and faces the following se) demand: P = 0.04 – 0.01Q, Q is the quantity and P is the price per unit. Its cost function is: C(Q) = 0.005Q + 0.00375Q². %3D ) What is the firm's marginal cost function? What is the firm's marginal revenue function? Find the equilibrium price and quantity. ) Illustrate graphically the equilibrium price, quantity, consumer surplus, and producer surplus. ) Compute the equilibrium consumer surplus and producer surplus. Compute the deadweight loss of this monopoly. ) Now a new competitor, Western Light, with constant marginal costs MCe = 0.025 can ntontially ontor the markot What can Eloctric tain markot?
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.9P
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Transcribed Image Text:The Metro Electric Company produces and distributes electricity to
residential customers in the metropolitan area. This company is a monopoly and faces the following
(inverse) demand:
P = 0.04 – 0.01Q,
where Q is the quantity and P is the price per unit. Its cost function is:
C(Q) = 0.005Q + 0.00375Q².
(a) What is the firm's marginal cost function? What is the firm's marginal revenue function?
Find the equilibrium price and quantity.
(b) Illustrate graphically the equilibrium price, quantity, consumer surplus, and producer surplus.
(c) Compute the equilibrium consumer surplus and producer surplus. Compute the deadweight
loss of this monopoly.
(d) Now a new competitor, Western Light, with constant marginal costs MC. = 0.025 can
potentially enter the market. What can Metro Electric Company do to retain the market?
What price would it charge? What quantity would it produce? How do the deadweight loss
in this scenario compares to that in part (c)? How ywould your answers (here in part (d))
would differ if instead MC. = 0.03?
%3D
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