Econ 400 Spring 16 Assignment 4

Econ 400 Spring 16 Assignment 4 - Elena Antoniadou Econ 400...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Elena Antoniadou Econ 400 – Managerial Economics Assignment 4 Due Tuesday April 19 1. Consider a monopoly electric utility on an island. Generation capacity cost for providing electricity to the island is r=4 per kilowatt/hour. Suppose that there are no operating costs. The daytime and nighttime inverse demand function for electricity are given by p D =12-0.5q D and p N =24 -2q N . (a) Find the profit maximizing capacity and peak-load prices for the utility. (b) Find the profit maximizing capacity and price, if the utility is regulated to charge a uniform price for electricity throughout the day. (c) Suppose that the utility is subject to rate of return regulation so that it breaks even. Find the optimal peak-load prices. (d) Suppose that the rate of return regulated utility is also regulated to charge the same price throughout the day. Find its optimal price. (e) Find total welfare in each of the four previous scenarios and give the ordering of scenarios in terms of social welfare. (f) How does your answer to (c) change if day demand is p D =8-0.5q D ? 2. Epsilon Air, a small commuter airline, faces summer and winter demands for travel given by the following inverse demands: p s = 25 – 0.5 q s p w = 50 – 2 q w . (a) There are no fixed costs but the marginal capacity cost is $4 and the marginal operating cost is $10. Calculate the profit-maximizing prices, p s * and p w *, under peak-load pricing. (b) Suppose Epsilon Air faces an increased marginal capacity cost of $10 and the same marginal operating cost of $10. Calculate the profit-maximizing prices under this shifting peak scenario, p s ** and p w **.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern