Gotham City's Water and Sewer provider is a regulated natural monopoly that has a cost function, C(Q, N) = 1,000 + 4N + 3Q, where N is the number of households, and Q is the cubic inches of water consumed per day. There are 50 high type consumers each with demand, 1 qh = 8 2Phs and 30 low type consumers with demand, Each q, is cubic inches consumed per household per day. Start with the assumption that the monopolist is profit maximizing and is unconstrained (i.e. no regulation). (a) What price would a uniform price monopolist charge? Calculate profit and deadweight loss. (b) Find the two-part tariff schedule using the average demand (i.e. one entry fee and one per-unit fee
Gotham City's Water and Sewer provider is a regulated natural monopoly that has a cost function, C(Q, N) = 1,000 + 4N + 3Q, where N is the number of households, and Q is the cubic inches of water consumed per day. There are 50 high type consumers each with demand, 1 qh = 8 2Phs and 30 low type consumers with demand, Each q, is cubic inches consumed per household per day. Start with the assumption that the monopolist is profit maximizing and is unconstrained (i.e. no regulation). (a) What price would a uniform price monopolist charge? Calculate profit and deadweight loss. (b) Find the two-part tariff schedule using the average demand (i.e. one entry fee and one per-unit fee
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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