Answer Happy

Problem 1: You run the Louisiana Megawatt Co-Op. Your company is the sole supplier of electrical power in the region. You sell electricity to both residential customers and industrial customer. You suspect that the two groups of customers may have different price sensitivity since large industrial customers are more likely to choose to produce their own electricity. You hire an economist to estimate the following (inverse) demand curves per month for these distinct markets: Industrial Market: P = 48-49₁ 20 Residential Market: P = 80-- QR 3 Where P refers to prices charged in each market and Q refers to the monthly quantities demanded in each market. The total costs (in thousands of dollars) of your monthly operation are given by: TC=100+4Q+Q² a. If you decide to offer you electricity at a single price to all potential buyers, at what price will the industrial buyers be priced out of the market? b. What is the market demand function if you decide to offer electricity to all potential buyers at a single price? c. If you decide to offer electricity at a single price, what price will you charge and how many units will you sell? How much electricity will be sold in each market? d. If you decide to offer electricity to each market at different prices (i.e., engage in third-degree price discrimination), what price will you charge in each market and how many units will be sold in each market? e. Compare the profits under the two pricing strategies. Comment on the comparison.