The Odessa Independent Phone Company (OIPC) is currently engaged in a rate case that will set rates for its Midland-Odessa area customer base. OIPC has total assets of $20 million. The Texas Public Utility Commission has determined that an 11 percent return on assets is fair. OIPC has estimated its annual demand function as follows: P=$3,514-$0.08Q Its total cost function ( Not Including the cost of capital) is TC=$2,300,00+$130Q OIPC has proposed a rate of $250 per year for each customer. If this rate is approved, OIPC will earn a percent return on assets? If the commission wants to limit the return on assets to 11 percent, OIPC can either charge per year for each customer and serve fewer customers than under its proposed rate of $250, or it can charge per year for each customer and serve more customers than under its proposed rate of $250.
The Odessa Independent Phone Company (OIPC) is currently engaged in a rate case that will set rates for its Midland-Odessa area customer base. OIPC has total assets of $20 million. The Texas Public Utility Commission has determined that an 11 percent return on assets is fair. OIPC has estimated its annual
P=$3,514-$0.08Q
Its total cost function ( Not Including the cost of capital) is
TC=$2,300,00+$130Q
OIPC has proposed a rate of $250 per year for each customer. If this rate is approved, OIPC will earn a percent return on assets?
If the commission wants to limit the return on assets to 11 percent, OIPC can either charge per year for each customer and serve fewer customers than under its proposed rate of $250, or it can charge per year for each customer and serve more customers than under its proposed rate of $250.
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