Explore BrainMass
Share

Explore BrainMass

    Monopoly regulation

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Cable co: Demand curve for monthly service:

    P=$37.50 -$0.0005Q.This implies annual demand and marginal revenue curves of:
    P=$450 -$0.006Q
    MR=$450-$0.012Q
    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:
    TC=$4,275,000+$75Q+$0.0015Q^(squared)
    MC=$75+$0.003Q
    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)

    © BrainMass Inc. brainmass.com October 9, 2019, 4:00 pm ad1c9bdddf
    https://brainmass.com/economics/utility-demand/monopoly-regulation-curves-19566

    Solution Preview

    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:

    MR=MC, or
    450-0.012Q=75+0.003Q, or
    0.015 Q = 375
    solve for Q= 25,000
    then from the demand curve, ...

    Solution Summary

    The solution answers the question(s) below.

    $2.19