2. Consider a local utility company (Xcel Energy). a. In what ways is this company a natural monopoly? MR=MC b. Consider the cost structure and market demand for the Xcel Energy. Assume: I, there are high fixed costs of starting an energy company 2. the marginal cost per service sold is constant and fairly low 3. each consumer pays the same price for service-there are no differentiating package deals. Given the assumptions above, draw the cost structure (MC and ATC), demand and marginal revenue. c. State the profit maximization rule to determine the optimal quantity of output (electricity service) a monopolist will choose.
2. Consider a local utility company (Xcel Energy). a. In what ways is this company a natural monopoly? MR=MC b. Consider the cost structure and market demand for the Xcel Energy. Assume: I, there are high fixed costs of starting an energy company 2. the marginal cost per service sold is constant and fairly low 3. each consumer pays the same price for service-there are no differentiating package deals. Given the assumptions above, draw the cost structure (MC and ATC), demand and marginal revenue. c. State the profit maximization rule to determine the optimal quantity of output (electricity service) a monopolist will choose.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:2. Consider a local utility company (Xcel Energy).
In what ways is this company a natural monopoly?
a.
MR=MC
b. Consider the cost structure and market demand for the Xcel Energy. Assume:
1. there are high fixed costs of starting an energy company
2. the marginal cost per service sold is constant and fairly low
3. each consumer pays the same price for service - there are no differentiating package deals.
Given the assumptions above, draw the cost structure (MC and ATC), demand and marginal revenue.
V
c. State the profit maximization rule to determine the optimal quantity of output (electricity service) a
monopolist will choose.
d. Use the rule in part (c) to find and label the
1. profit maximizing quantity:
2. price the firm will set:
3. the average total cost:
c. Use the graph to show the welfare effects of this behavior. That is, what is
1. CS:
2. Economic profit (equation):
3. DWL:
f. Think about being a changemaker for the common good. What might public policy be towards Xcel
Energy?
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