Demand function price and social welfare

Reference no: EM1312897

A business faces equal time periods of peak and off-peak demand for its service as given by the following:

P₁ = 25 - .02Q₁

P₂ = 15 - .01Q₂

The business faces marginal operation costs of $1.00 per unit. The business also faces a capacity constraint such that it must incur a $2.50 per-unit cost to expand capacity.

Between your answers to parts b and c, which prices/capacity are best applied from a social welfare perspective? Why?

Reference no: EM1312897

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