Question 9 You have been appointed the new managing director of BOTCHPOWER, which has bought a major stake in Ghana’s ECG and you company is described as a monopolistic competitive firm in the supply of electricity in Ghana. In effect, your firm has the power to discriminate between domestic consumers and commercial consumers of electricity in Ghana. To help you price your services appropriately to maximize profit, you engaged an economist who estimated the demand function for both Domestic consumers and Commercial consumers as: ? = 48 – 0.4? Domestic Consumers -- ? = 20 – 0.1? Commercial Consumers (( Where ?- and ?( are the respective kilowatts (KW) of electricity consumed by Domestic Commercial consumers and ? and ? are their respective prices per kilowatt. If the total cost -( of this BOTCHPOWER company for producing a kilowatt of electricity is given as ?? = 70 + 80?, where ? = ?- + ?(: a) What price will BOTCHPOWER charge per kilowatt to maximize profits: i. With discrimination between Domestic and Commercial consumers? ii. Without discrimination? b) Determine the maximum profit to be earned by BOTCHPOWER with and without discrimination. c) What can you say about the kilowatts of electricity sold and profit of BOTCHPOWER, with and without discrimination?

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 9 You have been appointed the new managing director of BOTCHPOWER, which has bought a major stake in Ghana’s ECG and you company is described as a monopolistic competitive firm in the supply of electricity in Ghana. In effect, your firm has the power to discriminate between domestic consumers and commercial consumers of electricity in Ghana. To help you price your services appropriately to maximize profit, you engaged an economist who estimated the demand function for both Domestic consumers and Commercial consumers as: ? = 48 – 0.4? Domestic Consumers -- ? = 20 – 0.1? Commercial Consumers (( Where ?- and ?( are the respective kilowatts (KW) of electricity consumed by Domestic Commercial consumers and ? and ? are their respective prices per kilowatt. If the total cost -( of this BOTCHPOWER company for producing a kilowatt of electricity is given as ?? = 70 + 80?, where ? = ?- + ?(: a) What price will BOTCHPOWER charge per kilowatt to maximize profits: i. With discrimination between Domestic and Commercial consumers? ii. Without discrimination? b) Determine the maximum profit to be earned by BOTCHPOWER with and without discrimination. c) What can you say about the kilowatts of electricity sold and profit of BOTCHPOWER, with and without discrimination?

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