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A monopoly electricity producer serves two types of customers, business (B) and house- hold (H). The demand function of business customers is given by QB = 100 - PB and the demand function of household customers is given by QH = 50-PH. We assume there is no marginal cost, yet the monopolist has the fixed cost F= 2000. So far, the monopolist is unregulated. 1.1 Calculate the monopoly prices and quantities, as well as calculating the consumer surplus and profit for each type of customer. 1.2 Briefly state the definition of first-best outcome, then find the first-best outcome. The regulator now considers setting Ramsey Prices to attain the second-best outcome. 1.3 Give a brief definition of second-best outcome and state the quantity reduction rule, which is the necessary condition for Ramsey Prices, and economic insights.

A monopoly electricity producer serves two types of customers, business (B) and house- hold (H). The demand function of business customers is given by QB = 100 - PB and the demand function of household customers is given by QH = 50-PH. We assume there is no marginal cost, yet the monopolist has the fixed cost F= 2000. So far, the monopolist is unregulated. 1.1 Calculate the monopoly prices and quantities, as well as calculating the consumer surplus and profit for each type of customer. 1.2 Briefly state the definition of first-best outcome, then find the first-best outcome. The regulator now considers setting Ramsey Prices to attain the second-best outcome. 1.3 Give a brief definition of second-best outcome and state the quantity reduction rule, which is the necessary condition for Ramsey Prices, and economic insights.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question -1 A monopoly electricity producer serves two types of customers, business (B) and house- hold (H). The demand function of business customers is given by QB = 100 – PB and the demand function of household customers is given by QH = 50 – PH. We assume there is no marginal cost, yet the monopolist has the fixed cost F = 2000. So far, the monopolist is unregulated. 1.1 Calculate the monopoly prices and quantities, as well as calculating the consumer surplus and profit for each type of customer. 1.2 Briefly state the definition of first-best outcome, then find the first-best outcome. The regulator now considers setting Ramsey Prices to attain the second-best outcome. 1.3 Give a brief definition of second-best outcome and state the quantity reduction rule, which is the necessary condition for Ramsey Prices, and economic insights. 1.4 The quantity for the business customers is Q = 40 at the Ramsey Prices (R). Derive the Ramsey Prices for both consumers (P# and P#). Briefly explain why PË is higher than P. 1.5 Calculate the new total surplus at Ramsey Prices. Compared to the answer in (b), how much is the increase in total surplus?
Transcribed Image Text:Question -1 A monopoly electricity producer serves two types of customers, business (B) and house- hold (H). The demand function of business customers is given by QB = 100 – PB and the demand function of household customers is given by QH = 50 – PH. We assume there is no marginal cost, yet the monopolist has the fixed cost F = 2000. So far, the monopolist is unregulated. 1.1 Calculate the monopoly prices and quantities, as well as calculating the consumer surplus and profit for each type of customer. 1.2 Briefly state the definition of first-best outcome, then find the first-best outcome. The regulator now considers setting Ramsey Prices to attain the second-best outcome. 1.3 Give a brief definition of second-best outcome and state the quantity reduction rule, which is the necessary condition for Ramsey Prices, and economic insights. 1.4 The quantity for the business customers is Q = 40 at the Ramsey Prices (R). Derive the Ramsey Prices for both consumers (P# and P#). Briefly explain why PË is higher than P. 1.5 Calculate the new total surplus at Ramsey Prices. Compared to the answer in (b), how much is the increase in total surplus?
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