Bundle: Microeconomics, Loose-leaf Version, 10th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
10th Edition
ISBN: 9781305782570
Author: William Boyes; Michael Melvin
Publisher: Cengage Learning
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Question
Chapter 14, Problem 12E
To determine
To find:
The costs of the regulationwhen an agency would be permitted to trade in the United States.
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Chapter 14 Solutions
Bundle: Microeconomics, Loose-leaf Version, 10th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
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- Suppose regulators are deciding how the local electric company is allowed to set prices. Demand for electricity is given by P = 40-Q, where Q is millions of megawatt hours demanded annually. The electric company is allowed to operate as a monopoly. The marginal cost of the company is $2, while the fixed cost is $150 million annually. (a) If the price of the electric company was not regulated, what price would it set? What would be its profits and the deadweight loss? (b) Knowing the fixed cost, demand curve, and marginal cost of the utility, the regulator decides to set a linear price that allows the electric utility to break even. What is this price? What would be the deadweight loss? (c) Suppose that demand for electricity varies over the course of the day and is most inelastic in the middle of the day. Illustrate how the regulator could use this information to improve on the outcome in (b)? Would there be any challenges that would prevent regulators from using the prices you…arrow_forwardWhy should regulatory regimes be ‘proportionate’ and ‘real-time’? What are the fundamentalbuilding block? (50 words)arrow_forwardDefinition of Economic Theory of Government Regulationarrow_forward
- Q3. Say the town of Manchester has regulated its water utility so that it covers the cost of its production for its water and also adds a 20% profit to the price it charges its customer. What would this regulation example be considered? a.) Price-cap regulation b.) Cost-plus regulation c.) Break-even regulationarrow_forwardGiven what you know about regulatory capture, can you describe a possible scenario where accusations of restrictive practices ends up limiting competition, rather than extending it?arrow_forwardDiscuss ONE key federal law the FTC uses to regulate violators.arrow_forward
- Why does regulatory capture reduce the persuasiveness of the case for regulating industries for the benefit of consumers?arrow_forwardWhat are the three problems that economists have noted with regard to command-and-control regulation?arrow_forwardIf the transit system were allowed to operate as an unregulated monopoly, what output would it supply and what price would it charge?arrow_forward
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