Cable co: Demand curve for monthly service:
P=$37.50 -$0.0005Q.This implies annual demand and marginal revenue curves of:
where P is service in dollars and Q is no. of customers served.Total and marginal costs per year(before investment return) are described by the function:
The co.has assets of $1.5 million and the utility commission has authorized a 15% return on investment.
A. Calculate profit-max price(monthly and annually), output, and rate of return levels.
B. What monthly price should commission grant to limit cable co. to a 15% rate of return? (please explain all steps used in calculation)
A. calculate profit-max price(monthly and annually), output, and rate of return levels
To max profit, the first order condition of the firm is:
0.015 Q = 375
solve for Q= 25,000
then from the demand curve, ...
The solution answers the question(s) below.