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The Question: Assume that electricity production has been done by several regional firms in the US, each operating as a pure monopoly.

The Question:

Assume that electricity production has been done by several regional firms in the US, each operating as a pure monopoly.

Explain and graphically illustrate how the electrical monopolist would determine its profit maximizing price and output level.
Identify the area of consumer and producer surplus for the profit maximizing monopoly.
Identify the deadweight loss for the monopolist.

Now assume the federal government imposes a regulation on the monopoly.

Show and explain how the electrical monopolist would determine its profit-maximizing price and output level.
Identify the area of consumer surplus and producer surplus for the profit maximizing monopoly.
Identify the deadweight loss for the regulated monopolist.

Now the federal government decides to deregulate the market for electricity nationwide.

Show and explain how de-regulation will impact price and output in the now perfectly competitive market for electricity production. (Hint: You should use a monopoly graph to show where the perfectly competitor would operate.)
Identify the area of consumer surplus and producer surplus for the profit maximizing monopoly

This question was asked on May 18, 2010.

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