where DTE energy is a Consider the electricity market in Ann Arbor monopoly producer. Suppose that...
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where DTE energy is a Consider the electricity market in Ann Arbor monopoly producer. Suppose that it cost DTE energy $12 million to build a generator (i.e. DTE energy's fixed cost). [Note: Assume that the electricity is generated via green energy so there is no pollution being emitted] a) What is DTE energy's overall profit (taking into account how much it took DTE energy to build the generator) assuming it faces the same market demand and charges its profit-maximizing monopoly price? b) Suppose now that the local government wants to regulate DTE energy due to it being a monopoly. It wants to do so by enforcing a price ceiling in the electricity market (i.e. putting a maximum possible market price for electricity sale). If the government puts a price ceiling of $0.3, what will be the profit-maximizing price/quantity that DTE energy charges? price c) What happens to DTE energy's profit (taking its fixed-cost into account) when there's a ceiling of $0.3/kWh? If DTE energy knew that the local government would regulate the elec- tricity price (i.e. put the price ceiling), would it have chosen to enter the market at all? d) Suppose Clean Energy Inc., a new energy company is thinking of entering the Ann Arbor electricity market. If it chooses to enter the market, it will also have to incur a fixed cost of $12M to build a generator. If it chooses to enter the market, it will have the same technology as DTE energy i.e. it can generate electricity at constant marginal cost of $0.2/kWh. And if it does enter the market, it will split the electricity market demand by half with DTE energy i.e. both companies will be an effective monopoly for half of Ann Arbor's electricity market and will face market demand of Qd² = 80M 100M P If Clean Energy Inc. enters the market, what would be its profit-maximizing price/quantity? e) If Clean Energy Inc. enters, how much profit will it generate? (including its fixed-cost) Given your answer, do you think Clean Energy Inc. should enter the Ann Arbor electricity market? where DTE energy is a Consider the electricity market in Ann Arbor monopoly producer. Suppose that it cost DTE energy $12 million to build a generator (i.e. DTE energy's fixed cost). [Note: Assume that the electricity is generated via green energy so there is no pollution being emitted] a) What is DTE energy's overall profit (taking into account how much it took DTE energy to build the generator) assuming it faces the same market demand and charges its profit-maximizing monopoly price? b) Suppose now that the local government wants to regulate DTE energy due to it being a monopoly. It wants to do so by enforcing a price ceiling in the electricity market (i.e. putting a maximum possible market price for electricity sale). If the government puts a price ceiling of $0.3, what will be the profit-maximizing price/quantity that DTE energy charges? price c) What happens to DTE energy's profit (taking its fixed-cost into account) when there's a ceiling of $0.3/kWh? If DTE energy knew that the local government would regulate the elec- tricity price (i.e. put the price ceiling), would it have chosen to enter the market at all? d) Suppose Clean Energy Inc., a new energy company is thinking of entering the Ann Arbor electricity market. If it chooses to enter the market, it will also have to incur a fixed cost of $12M to build a generator. If it chooses to enter the market, it will have the same technology as DTE energy i.e. it can generate electricity at constant marginal cost of $0.2/kWh. And if it does enter the market, it will split the electricity market demand by half with DTE energy i.e. both companies will be an effective monopoly for half of Ann Arbor's electricity market and will face market demand of Qd² = 80M 100M P If Clean Energy Inc. enters the market, what would be its profit-maximizing price/quantity? e) If Clean Energy Inc. enters, how much profit will it generate? (including its fixed-cost) Given your answer, do you think Clean Energy Inc. should enter the Ann Arbor electricity market?
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a To calculate DTE Energys overall profit we need to consider its total revenue and total cost DTE Energy is a monopoly so it maximizes profit by sett... View the full answer
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