Problem 5: You work for a local utility company that is the monopoly provider of electricity in the market you serve. Re

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Problem 5 You Work For A Local Utility Company That Is The Monopoly Provider Of Electricity In The Market You Serve Re 1 (115.57 KiB) Viewed 34 times

Problem 5: You work for a local utility company that is the monopoly provider of electricity in the market you serve. Research of the customers in your market has found the demand from a typical customer is: P = $0.25-0.00014Q Here Q is the quantity of electricity purchased in kilowatt hours (kWh) per month. The marginal cost of a kilowatt hour is $0.12 a. (You may ignore fixed cost.) If your firm decides to charge a single price per kilowatt hour, what price should it charge and how many kilowatt hours can you expect to sell to the typical customer each month? b. How much profit would your firm earn under this pricing scheme? Having had managerial economics, you suggest that rather than a single price per kilowatt hour, your firm could charge a monthly flat fee for the electrical service and charge a small fee per kilowatt hour to cover the cost of generating the electricity. c. Again, ignoring fixed costs, what price should you charge for a kilowatt hour and how many kilowatt hours would the typical consumer buy each month? d. How much should you charge for the monthly fee for the electrical service? e. What profit do you anticipate earning using this scheme from the typical customer compared to the single price strategy?