Answered: (d) Now a new competitor, Western…

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 2.3CE

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Question

instructions

please tackle d only.

answers for a, b and c are attached as photos.

The Metro Electric Company produces and distributes electricity to residential customers in the metropolitan area. This company is a monopoly and faces the following (inverse) demand: P = 0.04 – 0.01Q, where Q is the quantity and P is the price per unit. Its cost function is: C(Q) = 0.005Q + 0.00375Q².

(a) What is the firm's marginal cost function? What is the firm's marginal revenue function? Find the equilibrium price and quantity.

(b) Illustrate graphically the equilibrium price, quantity, consumer surplus, and producer surplus.

(d) Now a new competitor, Western Light, with constant marginal costs MC. = 0.025 can potentially enter the market. What can Metro Electric Company do to retain the market? What price would it charge? What quantity would it produce? How do the deadweight loss in this scenario compares to that in part (c)? How ywould your answers (here in part (d)) would differ if instead MC. = 0.03? %

PC#.
0-04
MC
0.0273
DWL.
0.015
O-005
MR
D
127 2
4
:. C-s = (o.04 -- 0.0273 -
(0.04 -0.029 3
) * 1.27
Mc lwhen d> 1·2+) = 0·005t 0.0075(+27)
%3D
-$0.015
stoe) .
:. P.S
o.015 -0.005)
100273-0.015A123
$ 0.022
4 DWL = (o.0273-0-015)» (2-1 23)
$ 0.0045

82 0.04-P
- 4- looP
9)
dd. :
0.04- 0.018
:. MR STR
0.04- 0.02 &
cost fn. C=
0.0058+
0.00375 Q
MC 8TC
O.005
0.0075 &
ャ
monopoly will produce uhere
MC=MR
Cin order
do maxinmi ze
profet
0.005 + 0.0075d=0.04-0o.02
028
O. b4 - 0.005
1. 27 unibs
0. 0075 + 0.02
0.04-0.01(1.27)
O. 0273
- Equilibaum is achieved
where
P= MC
(in order tr
nax.
under competitne market)
0.04-0.01 & = 0.005 + 0-0058
equi. quantiny, Oľ -
- 0.005 +0.04
E 2 unity
0.0075+ 0.01
equi. price,
p o.04- 0:01(2) =
$ 0.02
Hence, egul. pace fo Guanhly undn Marignoly
io $ 0.0273
P l•27
anit
Despactivaly

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