Find the two-part tariff schedule using the average demand

Assignment Help Finance Basics

Reference no: EM131462627

Assignment

1. The city's Water and Sewer provider is a regulated natural monopoly that has a cost function,

C(Q, N)=1, 000 + 4N + 3Q,

where N is the number of households, and Q is the cubic inches of water consumed per day.

There are 50 high type consumers each with demand,

q_h = 8 - (1/2)p_h,

and 30 low type consumers with demand,

q_l = 4 - (1/4)p_l.

Each qi is cubic inches consumed per household per day.

Start with the assumption that the monopolist is profit maximizing and is unconstrained (i.e. no regulation).

(a) What price would a uniform price monopolist charge? Calculate profit and deadweight loss.

(b) Find the two-part tariff schedule using the average demand (i.e. one entry fee and one per-unit fee for the aggregate demand function). Does anyone get excluded from the market? Calculate profit and deadweight loss.

(d) Find a multi-part tariff such that the monopolist maximizes profits by offering a "menu" of prices: one price for a fixed amount of water, one two-part pricing schedule for a variable amount of water.

Find the monopolist's profit.

Now assume a regulator wants to improve upon the efficiency loss.

(e) If the regulator forces marginal cost pricing to eliminate all deadweight loss, how large would the subsidy need to be such that the monopolist breaks even? Discuss the least inefficient way to raise subsidy revenue (from what type of markets?).

(f) If the regulator wants no deadweight loss (unit price of $3), what is the highest tariff they could permit to get all customers to buy? And the lowest? What would the monopolist's profit and consumer surplus be in both instances?

(g) Find a multi-part tariff a regulator would set up to maximize consumer surplus while allowing non-negative profit for the monopolist. Calculate consumer surplus.

Reference no: EM131462627

Questions Cloud

Survive with one remaining kidney : The scenario found in the original question would result in not one, but two people with one functioning kidney. As we know, a person can survive.

What role does strategic management play : What role does strategic management play in health care institutions? Why is that role important in today's health care environment

Under what conditions will costs increase : If a middleman is eliminated from a marketing channel, under what conditions will costs decrease? Under what conditions will costs increase?

Discuss other viewpoints or opposing viewpoints to program : Describe whether the program is effective and offer evidence to support your rationale. Discuss other viewpoints or opposing viewpoints to the program

Find the two-part tariff schedule using the average demand : Find the two-part tariff schedule using the average demand. Does anyone get excluded from the market? Calculate profit and deadweight loss.

Should all children be immunized against childhood diseases : 1. Should all children be immunized against childhood diseases? Why or Why Not?

What are the different types of chart of accounts : What is the difference between SAP ERP configuration and SAP ERP customization? Why would an organization want to limit customization?

Discuss the specific interest of lobbyist in each example : Discuss the specific interest of the lobbyist in each example. Discuss in detail some of the ethical issues and moral disputes for each example

What type of retailer is netflix : Netflix was launched about twelve years ago. Netflix was originally nothing more than an online version of a traditional video rental store.

User Account

All Pages