1. American Utility Company (or AUC) is the sole producer of electricity. The famous Dr. Hou has estimated the following for AUC: Market demand: Q = 195 – 0.5P Marginal Revenue: MR = 390 – 4Q Average Cost: AC=100Q' + 30 + Q Marginal Cost: MC = 30 +2Q Answer the following: (a graph is not mandatory, but it would certainly help) a) If AUC behaved as if it was a competitive firm, what would the equilibrium market P and Q? What is ABC's profit level? b) In reality, AUC DOES exploit its market powers and act as a monopolist, what will AUC's P, Q, and profit? c) Calculate the CS, PS, and TS in the two situations described above. Is there a DWL from AUC's monopolistic behavior? If so, so large is it?
1. American Utility Company (or AUC) is the sole producer of electricity. The famous Dr. Hou has estimated the following for AUC: Market demand: Q = 195 – 0.5P Marginal Revenue: MR = 390 – 4Q Average Cost: AC=100Q' + 30 + Q Marginal Cost: MC = 30 +2Q Answer the following: (a graph is not mandatory, but it would certainly help) a) If AUC behaved as if it was a competitive firm, what would the equilibrium market P and Q? What is ABC's profit level? b) In reality, AUC DOES exploit its market powers and act as a monopolist, what will AUC's P, Q, and profit? c) Calculate the CS, PS, and TS in the two situations described above. Is there a DWL from AUC's monopolistic behavior? If so, so large is it?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. American Utility Company (or AUC) is the sole producer of electricity. The famous Dr. Hou has estimated the
following for AUC:
Market demand: Q = 195 – 0.5P
Marginal Revenue: MR = 390 – 4Q
Average Cost: AC= 100Q' + 30 + Q
Marginal Cost: MC = 30 + 2Q
Answer the following: (a graph is not mandatory, but it would certainly help)
a) If AUC behaved as if it was a competitive firm, what would the equilibrium market P and Q? What is ABC's
profit level?
b) In reality, AUC DOES exploit its market powers and act as a monopolist, what will AUC's P, Q, and profit?
c) Calculate the CS, PS, and TS in the two situations described above. Is there a DWL from AUC's
monopolistic behavior? If so, so large is it?
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