Purchase Solution

Acme Water Price Ceiling

Not what you're looking for?

Ask Custom Question

Acme Water is a privately owned company that is the sole supplier of water to a rural town in Pennsylvania. The owner of the firm has provided the manager of the company an incentive to maximize the firm's profits, and the manager is currently selling 100,000 gallons of water per week at a price of $.05 per gallon. The marginal cost of water is zero, but the firm's average cost of this level of output is $.01 per gallon.
a. Determine Acme Water's profits.
b. Now suppose that local government imposes a price ceiling on water at a price of $.01 per gallon. Will the firm earn economic profits of zero as a result of this price ceiling? Explain.
c. Does the price ceiling of $.01 per gallon result in a shortage of water in Acme's service area?

Purchase this Solution
Solution Summary

The expert examines Acme water price ceilings.

Solution Preview

Acme Water's profits per week: 100,000* (.05-.01)= $4,000

The economic profits will be zero due to the price ceiling because Acme ...

Solution provided by:
Sandeep Bardia, MBA
Education
  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
Recent Feedback
  • "Thank you. "
  • "Thank you"
  • "Thank you. I got 20/20 last week for my discussion you help me out with."
  • "Thank you. Great Job. "
  • "Thank you. Great Job. "
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

View More Free Quizzes
Related BrainMass Solutions

  • Accounting questions

    Disposal costs amount to 10% of selling price and a "normal" profit is 35% of selling price. Instructions Complete the four columns above for each item.

  • LP in EXCEL Solver, Sensitivity Analysis and Limits Report

    One quart of Advanced juice is made from 20 fluid ounces of water and 12 fluid ounces of concentrate. Every day Acme has available 30,000 fluid ounces of water and 3,600 fluid ounces of concentrate.

  • Calculating the equilibrium parameters

    A hurricane hits and demand for bottled water increases to QD'=500-200p. Which policy is in the best interest of consumers as a group 1. Setting a price ceiling at the old equilibrium price or 2.

  • Analyzing the impact of new project company's worth

    SHOW ALL EXCEL SPREADSHEETS AND FORMULAS 1) What is the price per share of Acme stock without the cabinet business? 2) Once Acme announces that they will add the cabinet line, what is the price of Acme stock?

  • price floor or a price ceiling

    50780 price floor or a price ceiling Whenever you have a problem with a price floor or a price ceiling, do not assume that it will always be effective.

  • price ceiling

    347828 Price ceiling Explain the difference between a price floor and a price ceiling. Provide a situation in which a price ceiling may be used. What are the effects of this price control on the equilibrium price and quantity?

  • Effect of a Price Ceiling

    Please see the attached file for a graphic illustration of a price ceiling. (C) is correct. A price ceiling is effective when it is below the equilibrium price.

  • Acme Stock Options Problem

    Consider an Acme European call option and a European put option, both having an exercise price of $124 and both maturing in exactly one year.

  • The Acme Company

    424291 Acme Company stock price and common stock. The Acme Company, whose stock price is now $25, needs to raise $20million in common stock.

View More Related Solutions