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5. The French government announced plans to convert state-owned power firms EDF and GDF into separate limited companies that operate in geographically non-overlapping markets. Suppose that prior to privatization, the price per kilowatt-hours of electricity was 0.13 euros and that the inverse demand for electricity in each of these regions of France is P = 1.35 0.002Q. Furthermore, to supply electricity to its particular region of France, it costs each firm C(Q) = 120+ 0.13Q. Once privatized, each firm will have incentive to maximize profits. a. Determine the number of kilowatt-hours of electricity each firm will produce and supply to the market and the per-kilowatt-hour price. b. Compare the price-quantity combination before and after privatization. How much more profit will each firm earn as a result of privatization? c. Compute the price elasticity of demand at the price-quantity combination before and after privatization. Explain why the price elasticity makes sense at the profit maximizing price- quantity combination.

5. The French government announced plans to convert state-owned power firms EDF and GDF into separate limited companies that operate in geographically non-overlapping markets. Suppose that prior to privatization, the price per kilowatt-hours of electricity was 0.13 euros and that the inverse demand for electricity in each of these regions of France is P = 1.35 0.002Q. Furthermore, to supply electricity to its particular region of France, it costs each firm C(Q) = 120+ 0.13Q. Once privatized, each firm will have incentive to maximize profits. a. Determine the number of kilowatt-hours of electricity each firm will produce and supply to the market and the per-kilowatt-hour price. b. Compare the price-quantity combination before and after privatization. How much more profit will each firm earn as a result of privatization? c. Compute the price elasticity of demand at the price-quantity combination before and after privatization. Explain why the price elasticity makes sense at the profit maximizing price- quantity combination.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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5. The French government announced plans to convert state-owned power firms EDF and GDF into separate limited companies that operate in geographically non-overlapping markets. Suppose that prior to privatization, the price per kilowatt-hours of electricity was 0.13 euros and that the inverse demand for electricity in each of these regions of France is P = 1.35 0.002Q. Furthermore, to supply electricity to its particular region of France, it costs each firm C(Q) = 120+ 0.13Q. Once privatized, each firm will have incentive to maximize profits. a. Determine the number of kilowatt-hours of electricity each firm will produce and supply to the market and the per-kilowatt-hour price. b. Compare the price-quantity combination before and after privatization. How much more profit will each firm earn as a result of privatization? c. Compute the price elasticity of demand at the price-quantity combination before and after privatization. Explain why the price elasticity makes sense at the profit maximizing price- quantity combination.
Transcribed Image Text:5. The French government announced plans to convert state-owned power firms EDF and GDF into separate limited companies that operate in geographically non-overlapping markets. Suppose that prior to privatization, the price per kilowatt-hours of electricity was 0.13 euros and that the inverse demand for electricity in each of these regions of France is P = 1.35 0.002Q. Furthermore, to supply electricity to its particular region of France, it costs each firm C(Q) = 120+ 0.13Q. Once privatized, each firm will have incentive to maximize profits. a. Determine the number of kilowatt-hours of electricity each firm will produce and supply to the market and the per-kilowatt-hour price. b. Compare the price-quantity combination before and after privatization. How much more profit will each firm earn as a result of privatization? c. Compute the price elasticity of demand at the price-quantity combination before and after privatization. Explain why the price elasticity makes sense at the profit maximizing price- quantity combination.
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