04 Jun Question Consider a public utility providing water service as a natural monopoly to residents of a city. The market (as defined by the city’s boundaries) contains 100,000 ident
Question
Consider a public utility providing water service as a natural monopoly to residents of a city. The market (as defined by the city’s boundaries) contains 100,000 identical customers, each of which has a demand function q(p) = 0.2875?p/80,000 where q(p) is the number of megalitres (ML) of water demanded annually and p is the price per megalitre (1 ML = 1,000 cubic metres). Question
MOD 1 DQ 1
Is price elasticity of demand at GCU elastic or inelastic? What could you do to find out?
MOD 1 DQ 2
Most managers and executives believe their firm has an opportunity to take advantage of economies of scale; however, many firms do not. Slect one of the questions below and respond.
How could you determine if your firm has economies of scale?
What type(s) of firms typically have economies of scale? Which do not?
MOD 2 DQ 1
The long-run equilibrium for a perfectly competitive firm is zero-profit equilibrium. Does this mean that owners of these firms have no income? Explain.
MOD 2 DQ 2
How does the price and level of output for a monopolist differ from that of a purely competitive firm? Is this due to differences in the cost of doing business? Do these differences provide a rationale for anti-trust legislation? Explain.
WEEK 3 DQ 1
There are estimates that as many as 4,000 pizzerias open every year in the U.S. and just as many close. Why does this continue to happen?
WEEK 3 DQ 2
The manufacturers of R.C. Cola, with 2.1% market share in the soft drink industry, recently launched a new advertising campaign describing their brand as a “hip alternative” to “corporate colas” like Coke and Pepsi. Why don’t they simply tryetting ? denote total output in the market in megalitres, the total annual cost to the utility of providing water is TC(w) = 81,900,000 + 5,000w + 0.1w2. You are encouraged to utilize Excel to aid in answering this question.
a) Very briefly explain what characteristic about water service renders it a natural monopoly within the city and why? Your answer should refer to the MES and demand for water services.
b) Show that the inverse market demand function is given by p(w)= 23,000 ?0.8w and that the efficient price, consumption level and output level are P* = $8,600, q*= 0.18 and w* = 18,000, respectively.
c) Calculate the deficit incurred by the utility if it charges p*. Illustrate the efficient outcome and the deficit in an appropriate diagram.
d) If the market is left unregulated, show that the equilibrium price, consumption level and output level are
pe= $15,000, qe= 0.1 and we= 10,000, respectively. Calculate the profit earned by the utility in equilibrium. Illustrate the equilibrium outcome and profit in an appropriate diagram.
e) Suppose the market is regulated by the city’s waterworks commission and assume its information about the market limits it to imposing average cost pricing. Show that the price, consumption level and output level are
pa= $12,600, qa= 0.13 and wa= 13,000, respectively, under average cost pricing regulation. Calculate the profit earned by the utility in equilibrium. Illustrate the regulated outcome and profit in an appropriate diagram.
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