201-tutorial-07 - 201 Tutorial 7 2010 topic Pricing dates...

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Unformatted text preview: 201 Tutorial 7 2010 topic: Pricing dates: 17-21 May reading: Perloff chapter 12 Q1 Two Part Pricing 1 Consider a market with 100 identical consumers, each with the inverse de- mand schedule for electricity of P = 10- Q . They are served by an electric utility which operates with a fixed cost of 1200 and a constant marginal cost of 2. Suppose that this firm can implement a two part tariff, consisting of a price per kilowatt, S , and a fixed fee, R . 1. What are the profit maximizing values of S and R ? 2. How many kilowatts will be sold? 3. What is the monopolist’s profit? 4. Is this outcome allocatively efficient? Explain? Q2 Two Part Pricing 2 The same electricity retailer also supplies to another community, with the same costs of provision. But consumers in this second community have preferences for electricity consumption and other goods as represented by the indifference curves illustrated on the back page. The price of other goods is normalised to one....
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201-tutorial-07 - 201 Tutorial 7 2010 topic Pricing dates...

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