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Regulating a monopoly

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Regulating a Monopoly

Say you have a monopoly that provides a transportation service to a city.

Total investment in infrastructure and busses amount to $65,000,000.00

The company sells tickets to riders for a fixed price - i.e. one monthly price for any length journey

Monthly demand for tickets is            P = 20.25  - .00005Q

Where P = price of a ticket and Q the number of tickets

TC = $4,625,000 + 30Q + .0003Q2

MC = 30 + .0006Q

  1. Without regulation, how much would a monopoly charge per ticket and how many tickets would it make available?
  2. What would be its ROI?
  3. Assume that you want to regulate the monopoly so that its return on investment does not exceed 8%. How many units must it produce and how much would it charge for each unit?

Reference no: EM132255435

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