Final_Practice_Problems

Final_Practice_Problems - Final Practice Problems 1 Suppose...

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Final Practice Problems 1. Suppose there are two, independent demanders of electricity. The first group has inversed demand as follows: 1 1 120 P Q = - . The second group has inverse demand as follows: 2 2 100 P Q = - . The cost of producing a unit of electricity is \$2. Also, the cost of one unit of capacity is \$26. a. (6 points) If the government allows for one electricity producer and implements peak load pricing, what prices should each group pay for electricity, and how much capacity should be built? b. What is the profit of the electricity producer for these prices and capacity choice? c. What is total consumer surplus for these prices and capacity choice? 2. a. Suppose Firm A has cost function: 240 + 5*Q. Also, suppose inverse demand is: P = 77 – 3Q. i. If a franchise is auctioned off using a modified English auction where the firm offering the lowest price per unit wins the franchise, what is the lowest bid Firm A would be willing to make?

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