# tute_9ans - Hierarchies incentives and firm structure...

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ECOS3003 Tutorial 9 1 Hierarchies, incentives and firm structure ECOS3003 Tutorial 9 1. Question 19-2 on page 634. once it makes its investment GN is stuck with BD coal – need contract to be designed so as to limit hold-up (renegotiation) - important that the price of coal fixed for a long period. If it is not fixed, only adjusted in a way that does not involve hold-up and renegotiation, i.e. price adjusted by CPI - want price to be settled before making investment. 2. Question 19-4 on page 548 however calculate the two-part tariff in part (c). (a) MR = 60000 – 200Q MC = MR, so that Q = 280 P = 60000 – 100(280) = \$32000 π = \$784 0000 (b) π R = (P – t)Q; π R = (60000 – 100Q – t)Q 60000 200 0 R Q t Q π = = Q = (60000 – t)/200 300 20 0 100 F t t π = + = t = \$32000 Hence Q = 140 units P = \$46000 π R = (46000 – 32000).140 = \$1960000 π F = 140(32000 – 4000) = \$3920000 joint profit is 5880000 < π (c) charge t = 4000 then π R = (60000 – 100Q – 4000)Q

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