Homework: Homework 7 Score: 0 of 2 pts Concept: Profit Maximization Graph1 12 of

Question

Homework: Homework 7 Score: 0 of 2 pts Concept: Profit Maximization Graph1 12 of 19 (17 complete) HW Score: 87.5%, 26.25 of 30 pts The graph to the right depicts the demand for electricity from a local utility along with the average total cost and marginal cost of producing electricity. Suppose the local utility is a monopoly What is the protit maximizing quantity of electricity? 40 million kilowatt hours per day (Enter a numeric response using an integer) What is the corresponding profft-maximizing price? s 0 32 per kilowatt hour (Entor a numeric response using a real number rounded to two decimal places) ? 032 0 29 024 ATC Calculate the local utility's profits Smilion per day (Enter a numeric responso using a real number rounded to two decimal places ) 020. 40 100 Quantity of kilowat hours (per day in millions) Enter your answer in the answer box and then click Check Answer All parts s Clear All

Explanation / Answer

Since demand is downward sloping, firm uses MR = MC rule. This gives profit maximizing quantity at Q = 40 million kWh per day

Corresponding price is P = 0.32 dollars per kWh that lies on the demand curve. AC at Q = 40 units is 0.29 dollars per kWh. Hence profits for the utiliry are

= (P - ATC)*Q

= (0.32 - 0.29)*40

= $1.2 million

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