The Metro Electric Company produces and distributes electricity to residential customers in the metropolitan area. This monopoly firm is regulated, as are other investor owned electric companies. The company faces the following demand function: Qd = 40 – 100 P Its cost function is: C(Q) = 100 + 0.005Q + 0.00375 (Q^2) where Q is in millions of kilowatt hours and P is in dollars per kilowatt hour.

a) Find the output and quantity that the firm will produce if it were not regulated.

b) Illustrate in a graph the deadweight loss that would result if this company were allowed to operate as a profit maximizing firm (assuming that P = MC under regulation).

Answer rating: 100% (QA)

Qd 40 100P 100P 40 Qd P 04 001Qd CQ 100 0005Q 000375Q 2 Marginal cost MC dCQdQ 0005 ... View the full answer