Compute price elasticity of demand at the profit maximizing

Assignment Help Econometrics

Reference no: EM13222929

The French government announced plans to convert state-owned power firms EDF and GDF into separate limited companies that operate in geographically distinct markets. BBC News reported that France's CFT union responded by organizing a mass strike, which triggered power outages in some Paris suburbs. Union workers are concerned that privatizing power utilities would lead to large-scale job losses and power outages similar to those experienced in parts of the eastern coast of the United States and parts of Italy in 2003. Suppose that prior to privatization, the price per kilowatt hour of electricity was 0.105Q and that the inverse demand for electricity in each of these two regions of France is P = 1.255 - 0.001Q (in euros). Furthermore, to supply electricity to its particular region of France, it costs each firm C(Q) = 100.625 + 0.105Q (in euros). Once privatized, each firm will have incentive to maximize profits.

a. Determine the number of kilowatt hours of electricity each firm will produce and supply to the market, and the per-kilowatt hour price.

b. Compute the price elasticity of demand at the profit maximizing price-quantity combination.

c. Explain why the price elasticity makes sense at the profit-maximizing price-quantity combination.

d. Compare the price-quantity combination before and after privatization. How much more profit will each firm earn as a result of privatization?

Reference no: EM13222929

Questions Cloud

What is the average annual rate of growth of real output : In round numbers, real output doubled two times in the 40 years between 1950 and 1990, so it doubled every 20 years. This means that real output grew at a rate z that solves the equation 20 = 70 / z.Over this 40-year period, what is the average ann..

Compute kc for this reaction : 10.0 moles of NH3 and 10.0 moles of H2 are introduced into a 2.00 L flask. At equilibrium, 3.0 moles of NH3 gas remain. Calculate Kc for this reaction.

What is the optimal schooling level for worker a : There are two workers in the economy, "A" and "B"; "A" can go to school and "B" cannot. Education increases future income according to the following function: I(e)= 50(e)/(1+e) Total cost per year of schooling equals 2, and thus: mc(e)=2.

Review the franchising code of conduct : Write an essay that demonstrates your depth of understanding of the relevant legal instruments and their practical applications to business owners - EXPERT TO REVIEW THE FRANCHISING CODE OF CONDUCT

Compute price elasticity of demand at the profit maximizing : The French government announced plans to convert state-owned power firms EDF and GDF into separate limited companies that operate in geographically distinct markets. BBC News reported that France's CFT union responded by organizing a mass strike

Explain why cooperative approaches may stand up : Explain why cooperative approaches may stand up to legal review more easily in unionized plants than in non-unionized environments?

Calculate the pay overlap between these 2 pay grades : Assume Pay Grade A has a midpoint of $42,000 per hour with a 40% pay spread. Pay Grade B had a minimum pay of $60,000 per hour. Calculate the pay overlap between these 2 pay grades.

Depict and name all dienes of molecular formula : Draw and name all dienes of molecular formula C5H8. When E and Z isomers are possible, draw and name each stereoisomer.

What are the distinctions among procedural, interactional : Your manager tells you that the best way of ensuring fairness in reward distribution is to keep the pay a secret. How would you respond to this assertion? (be specific)

User Account

All Pages