1) You have been hired by Xenia Economic Advisors Inc. (XEA) to evaluate the Ele
ID: 1125036 • Letter: 1
Question
1) You have been hired by Xenia Economic Advisors Inc. (XEA) to evaluate the Electricity Monopoly in Sussieville. Sussieville is a town of 400,000 residents in the secluded region of Eastern RGVstan. RGV Electric is the sole provider of electricity in Sussieville. Market demand for electricity in Sussieville has been estimated to be: Q=300-2.5P Where, Q is the quantity of megawatt hours and P the price per megawatt hour. RGV Electric generates electricity with the large deposits of coal it controls. RGV Electric faces a cost of $10 for each unit of megawatt hour produced. That is, TC = 10Q. The primary objective of RGV Electric is to maximize profits. a) Find the MC, ATC, MR, and AR functions. b) What is the profit maximizing level of output (Q) and price (P)? c) Create a table on excel for values of Q from 1 to 120. Make Q the first column, P column 2, TR column 3, TC column 4, ATC column 5, MC column 6, and profits column 7 Highlight the row that determines the profit maximizing Q, P, and profits. d) On excel, draw the figure corresponding to this problem showing AR, MR, MC and ATC curves. In addition, label all axis and curves. e) Find the consumer surplus and producer surplus that is generated by the monopoly firm. f) What is the deadweight loss to Sussieville electricity customers by having RGV Electric as the sole supplier vis-à-vis social planner? g) Find the elasticity of demand at the point found in part (b). What is the price markup of the monopoly firm? Explain the price markup in terms of elasticity of demand.Explanation / Answer
Q = 300- 2.5 P
P =120-0.4Q
Revenue =P*Q =120Q -0.4Q^2
Marginal Revenue = 120-0.8Q
Here we are dealing with monopoly market therforeMR=MC to find optimum level of quantity
TC =10Q therfore MC = 10
MR=MC we have 120-0.8Q = 10
110 = 0.8Q hence Optimum or Profit maximising Q = 138 and Profit maximising Price is 120-0.4(138) =approx.(64.8)
TC =10Q therefore ATC = TC/Q = 10
MC =10
Revenue = P*Q = 120-0.4Q * Q = 120Q-0.4*Q^2
Marginal Revenue = 120-0.8Q
Average Revenue = Revenue/Q = 120-0.4Q
Q P TR AR MR ATC MC TC (10*Q) Profits 1 119.6 119.6 119.6 119.2 10 10 10 109.6 2 119.2 238.4 119.2 118.4 10 10 20 218.4 3 118.8 356.4 118.8 117.6 10 10 30 326.4 4 118.4 473.6 118.4 116.8 10 10 40 433.6 5 118 590 118 116 10 10 50 540 6 117.6 705.6 117.6 115.2 10 10 60 645.6 7 117.2 820.4 117.2 114.4 10 10 70 750.4 8 116.8 934.4 116.8 113.6 10 10 80 854.4 9 116.4 1047.6 116.4 112.8 10 10 90 957.6 10 116 1160 116 112 10 10 100 1060 11 115.6 1271.6 115.6 111.2 10 10 110 1161.6 12 115.2 1382.4 115.2 110.4 10 10 120 1262.4 13 114.8 1492.4 114.8 109.6 10 10 130 1362.4 14 114.4 1601.6 114.4 108.8 10 10 140 1461.6 15 114 1710 114 108 10 10 150 1560 16 113.6 1817.6 113.6 107.2 10 10 160 1657.6 17 113.2 1924.4 113.2 106.4 10 10 170 1754.4 18 112.8 2030.4 112.8 105.6 10 10 180 1850.4 19 112.4 2135.6 112.4 104.8 10 10 190 1945.6 20 112 2240 112 104 10 10 200 2040 21 111.6 2343.6 111.6 103.2 10 10 210 2133.6 22 111.2 2446.4 111.2 102.4 10 10 220 2226.4 23 110.8 2548.4 110.8 101.6 10 10 230 2318.4 24 110.4 2649.6 110.4 100.8 10 10 240 2409.6 25 110 2750 110 100 10 10 250 2500 26 109.6 2849.6 109.6 99.2 10 10 260 2589.6 27 109.2 2948.4 109.2 98.4 10 10 270 2678.4 28 108.8 3046.4 108.8 97.6 10 10 280 2766.4 29 108.4 3143.6 108.4 96.8 10 10 290 2853.6 30 108 3240 108 96 10 10 300 2940 31 107.6 3335.6 107.6 95.2 10 10 310 3025.6 32 107.2 3430.4 107.2 94.4 10 10 320 3110.4 33 106.8 3524.4 106.8 93.6 10 10 330 3194.4 34 106.4 3617.6 106.4 92.8 10 10 340 3277.6 35 106 3710 106 92 10 10 350 3360 36 105.6 3801.6 105.6 91.2 10 10 360 3441.6 37 105.2 3892.4 105.2 90.4 10 10 370 3522.4 38 104.8 3982.4 104.8 89.6 10 10 380 3602.4 39 104.4 4071.6 104.4 88.8 10 10 390 3681.6 40 104 4160 104 88 10 10 400 3760 41 103.6 4247.6 103.6 87.2 10 10 410 3837.6 42 103.2 4334.4 103.2 86.4 10 10 420 3914.4 43 102.8 4420.4 102.8 85.6 10 10 430 3990.4 44 102.4 4505.6 102.4 84.8 10 10 440 4065.6 45 102 4590 102 84 10 10 450 4140 46 101.6 4673.6 101.6 83.2 10 10 460 4213.6 47 101.2 4756.4 101.2 82.4 10 10 470 4286.4 48 100.8 4838.4 100.8 81.6 10 10 480 4358.4 49 100.4 4919.6 100.4 80.8 10 10 490 4429.6 50 100 5000 100 80 10 10 500 4500 51 99.6 5079.6 99.6 79.2 10 10 510 4569.6 52 99.2 5158.4 99.2 78.4 10 10 520 4638.4 53 98.8 5236.4 98.8 77.6 10 10 530 4706.4 54 98.4 5313.6 98.4 76.8 10 10 540 4773.6 55 98 5390 98 76 10 10 550 4840 56 97.6 5465.6 97.6 75.2 10 10 560 4905.6 57 97.2 5540.4 97.2 74.4 10 10 570 4970.4 58 96.8 5614.4 96.8 73.6 10 10 580 5034.4 59 96.4 5687.6 96.4 72.8 10 10 590 5097.6 60 96 5760 96 72 10 10 600 5160 61 95.6 5831.6 95.6 71.2 10 10 610 5221.6 62 95.2 5902.4 95.2 70.4 10 10 620 5282.4 63 94.8 5972.4 94.8 69.6 10 10 630 5342.4 64 94.4 6041.6 94.4 68.8 10 10 640 5401.6 65 94 6110 94 68 10 10 650 5460 66 93.6 6177.6 93.6 67.2 10 10 660 5517.6 67 93.2 6244.4 93.2 66.4 10 10 670 5574.4 68 92.8 6310.4 92.8 65.6 10 10 680 5630.4 69 92.4 6375.6 92.4 64.8 10 10 690 5685.6 70 92 6440 92 64 10 10 700 5740 71 91.6 6503.6 91.6 63.2 10 10 710 5793.6 72 91.2 6566.4 91.2 62.4 10 10 720 5846.4 73 90.8 6628.4 90.8 61.6 10 10 730 5898.4 74 90.4 6689.6 90.4 60.8 10 10 740 5949.6 75 90 6750 90 60 10 10 750 6000 76 89.6 6809.6 89.6 59.2 10 10 760 6049.6 77 89.2 6868.4 89.2 58.4 10 10 770 6098.4 78 88.8 6926.4 88.8 57.6 10 10 780 6146.4 79 88.4 6983.6 88.4 56.8 10 10 790 6193.6 80 88 7040 88 56 10 10 800 6240 81 87.6 7095.6 87.6 55.2 10 10 810 6285.6 82 87.2 7150.4 87.2 54.4 10 10 820 6330.4 83 86.8 7204.4 86.8 53.6 10 10 830 6374.4 84 86.4 7257.6 86.4 52.8 10 10 840 6417.6 85 86 7310 86 52 10 10 850 6460 86 85.6 7361.6 85.6 51.2 10 10 860 6501.6 87 85.2 7412.4 85.2 50.4 10 10 870 6542.4 88 84.8 7462.4 84.8 49.6 10 10 880 6582.4 89 84.4 7511.6 84.4 48.8 10 10 890 6621.6 90 84 7560 84 48 10 10 900 6660 91 83.6 7607.6 83.6 47.2 10 10 910 6697.6 92 83.2 7654.4 83.2 46.4 10 10 920 6734.4 93 82.8 7700.4 82.8 45.6 10 10 930 6770.4 94 82.4 7745.6 82.4 44.8 10 10 940 6805.6 95 82 7790 82 44 10 10 950 6840 96 81.6 7833.6 81.6 43.2 10 10 960 6873.6 97 81.2 7876.4 81.2 42.4 10 10 970 6906.4 98 80.8 7918.4 80.8 41.6 10 10 980 6938.4 99 80.4 7959.6 80.4 40.8 10 10 990 6969.6 100 80 8000 80 40 10 10 1000 7000 101 79.6 8039.6 79.6 39.2 10 10 1010 7029.6 102 79.2 8078.4 79.2 38.4 10 10 1020 7058.4 103 78.8 8116.4 78.8 37.6 10 10 1030 7086.4 104 78.4 8153.6 78.4 36.8 10 10 1040 7113.6 105 78 8190 78 36 10 10 1050 7140 106 77.6 8225.6 77.6 35.2 10 10 1060 7165.6 107 77.2 8260.4 77.2 34.4 10 10 1070 7190.4 108 76.8 8294.4 76.8 33.6 10 10 1080 7214.4 109 76.4 8327.6 76.4 32.8 10 10 1090 7237.6 110 76 8360 76 32 10 10 1100 7260 111 75.6 8391.6 75.6 31.2 10 10 1110 7281.6 112 75.2 8422.4 75.2 30.4 10 10 1120 7302.4 113 74.8 8452.4 74.8 29.6 10 10 1130 7322.4 114 74.4 8481.6 74.4 28.8 10 10 1140 7341.6 115 74 8510 74 28 10 10 1150 7360 116 73.6 8537.6 73.6 27.2 10 10 1160 7377.6 117 73.2 8564.4 73.2 26.4 10 10 1170 7394.4 118 72.8 8590.4 72.8 25.6 10 10 1180 7410.4 119 72.4 8615.6 72.4 24.8 10 10 1190 7425.6 120 72 8640 72 24 10 10 1200 7440 121 71.6 8663.6 71.6 23.2 10 10 1210 7453.6 122 71.2 8686.4 71.2 22.4 10 10 1220 7466.4 123 70.8 8708.4 70.8 21.6 10 10 1230 7478.4 124 70.4 8729.6 70.4 20.8 10 10 1240 7489.6 125 70 8750 70 20 10 10 1250 7500 126 69.6 8769.6 69.6 19.2 10 10 1260 7509.6 127 69.2 8788.4 69.2 18.4 10 10 1270 7518.4 128 68.8 8806.4 68.8 17.6 10 10 1280 7526.4 129 68.4 8823.6 68.4 16.8 10 10 1290 7533.6 130 68 8840 68 16 10 10 1300 7540 131 67.6 8855.6 67.6 15.2 10 10 1310 7545.6 132 67.2 8870.4 67.2 14.4 10 10 1320 7550.4 133 66.8 8884.4 66.8 13.6 10 10 1330 7554.4 134 66.4 8897.6 66.4 12.8 10 10 1340 7557.6 135 66 8910 66 12 10 10 1350 7560 136 65.6 8921.6 65.6 11.2 10 10 1360 7561.6 137 65.2 8932.4 65.2 10.4 10 10 1370 7562.4 138 64.8 8942.4 64.8 9.6 10 10 1380 7562.4 139 64.4 8951.6 64.4 8.8 10 10 1390 7561.6 140 64 8960 64 8 10 10 1400 7560 141 63.6 8967.6 63.6 7.2 10 10 1410 7557.6 142 63.2 8974.4 63.2 6.4 10 10 1420 7554.4 143 62.8 8980.4 62.8 5.6 10 10 1430 7550.4 144 62.4 8985.6 62.4 4.8 10 10 1440 7545.6 145 62 8990 62 4 10 10 1450 7540 146 61.6 8993.6 61.6 3.2 10 10 1460 7533.6 147 61.2 8996.4 61.2 2.4 10 10 1470 7526.4 148 60.8 8998.4 60.8 1.6 10 10 1480 7518.4 149 60.4 8999.6 60.4 0.8 10 10 1490 7509.6 150 60 9000 60 0 10 10 1500 7500 151 59.6 8999.6 59.6 -0.8 10 10 1510 7489.6 152 59.2 8998.4 59.2 -1.6 10 10 1520 7478.4 153 58.8 8996.4 58.8 -2.4 10 10 1530 7466.4 154 58.4 8993.6 58.4 -3.2 10 10 1540 7453.6 155 58 8990 58 -4 10 10 1550 7440 156 57.6 8985.6 57.6 -4.8 10 10 1560 7425.6 157 57.2 8980.4 57.2 -5.6 10 10 1570 7410.4 158 56.8 8974.4 56.8 -6.4 10 10 1580 7394.4 159 56.4 8967.6 56.4 -7.2 10 10 1590 7377.6 160 56 8960 56 -8 10 10 1600 7360 161 55.6 8951.6 55.6 -8.8 10 10 1610 7341.6 162 55.2 8942.4 55.2 -9.6 10 10 1620 7322.4 163 54.8 8932.4 54.8 -10.4 10 10 1630 7302.4 164 54.4 8921.6 54.4 -11.2 10 10 1640 7281.6 165 54 8910 54 -12 10 10 1650 7260 166 53.6 8897.6 53.6 -12.8 10 10 1660 7237.6 167 53.2 8884.4 53.2 -13.6 10 10 1670 7214.4 168 52.8 8870.4 52.8 -14.4 10 10 1680 7190.4 169 52.4 8855.6 52.4 -15.2 10 10 1690 7165.6 170 52 8840 52 -16 10 10 1700 7140 171 51.6 8823.6 51.6 -16.8 10 10 1710 7113.6Related Questions
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