Nampower treats high income earners in Kleine Kuppe as one market and low-income earners in Katutura...

  

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Nampower treats high income earners in Kleine Kuppe as one market and low-income earners in Katutura as another market. The marginal revenue function of an additional Kilowatt of electricity from the Kleine Kuppe market is MR₁ = 1,000-40q₁ and that from the Katutura market is MR₂ = 400-2002. Nampower's marginal cost function of producing an additional Kilowatt for both markets are MC = 40, with Q = 9₁ +92. Without any kilowatt of electricity produced, Nampower's total revenue is zero and fixed costs are N$220. (a) Find Nampower's total revenue and demand functions for each market and total cost function of servicing both markets. [5 marks] (b) Using the given information and your answers in (a), find total consumer surplus and Nampower's surplus/profits if: (i) Nampower is required by law, that is, the Namibian Competition Commission Act to charge perfect competition prices in each of the markets [5 marks] [5 marks] [4 marks] (ii) Nampower is allowed by law to apply third degree price discrimination (iii) It is illegal for Nampower to discriminate the two markets (c) In relation to social welfare and deadweight losses, what is the economic intuition derived from the combined value of Nampower and consumer surpluses from (i) to (iii) [2 marks] (d) Using the demand, equilibrium prices and quantities for each of the respective market in (ii), calculate the elasticity. Do the elasticities justify Nampower's separation of the two markets? Justify your reasoning [2 marks] (e) How much surplus will the Kleine Kuppe residence lose from not being charged the lower price paid by Katutura dwellers? [2 marks] Nampower treats high income earners in Kleine Kuppe as one market and low-income earners in Katutura as another market. The marginal revenue function of an additional Kilowatt of electricity from the Kleine Kuppe market is MR₁ = 1,000-40q₁ and that from the Katutura market is MR₂ = 400-2002. Nampower's marginal cost function of producing an additional Kilowatt for both markets are MC = 40, with Q = 9₁ +92. Without any kilowatt of electricity produced, Nampower's total revenue is zero and fixed costs are N$220. (a) Find Nampower's total revenue and demand functions for each market and total cost function of servicing both markets. [5 marks] (b) Using the given information and your answers in (a), find total consumer surplus and Nampower's surplus/profits if: (i) Nampower is required by law, that is, the Namibian Competition Commission Act to charge perfect competition prices in each of the markets [5 marks] [5 marks] [4 marks] (ii) Nampower is allowed by law to apply third degree price discrimination (iii) It is illegal for Nampower to discriminate the two markets (c) In relation to social welfare and deadweight losses, what is the economic intuition derived from the combined value of Nampower and consumer surpluses from (i) to (iii) [2 marks] (d) Using the demand, equilibrium prices and quantities for each of the respective market in (ii), calculate the elasticity. Do the elasticities justify Nampower's separation of the two markets? Justify your reasoning [2 marks] (e) How much surplus will the Kleine Kuppe residence lose from not being charged the lower price paid by Katutura dwellers? [2 marks]

Answer rating: 100% (QA)

a Market 1 Kleine Kuppe TR1 1000q1 40q12 Demand q1 1000 P140 Market 2 Katutura TR2 400q2 2... View the full answer