1. American Utility Company (or AUC) is the sole producer of electricity. The famous Dr. Hou has estimated the following for AUC: Market demand: Q = 195 – 0.5P Marginal Revenue: MR = 390 – 4Q Average Cost: AC=100Q' + 30 + Q Marginal Cost: MC = 30 +2Q Answer the following: (a graph is not mandatory, but it would certainly help) a) If AUC behaved as if it was a competitive firm, what would the equilibrium market P and Q? What is ABC's profit level? b) In reality, AUC DOES exploit its market powers and act as a monopolist, what will AUC's P, Q, and profit? c) Calculate the CS, PS, and TS in the two situations described above. Is there a DWL from AUC's monopolistic behavior? If so, so large is it?

1. American Utility Company (or AUC) is the sole producer of electricity. The famous Dr. Hou has estimated the following for AUC: Market demand: Q = 195 – 0.5P Marginal Revenue: MR = 390 – 4Q Average Cost: AC=100Q' + 30 + Q Marginal Cost: MC = 30 +2Q Answer the following: (a graph is not mandatory, but it would certainly help) a) If AUC behaved as if it was a competitive firm, what would the equilibrium market P and Q? What is ABC's profit level? b) In reality, AUC DOES exploit its market powers and act as a monopolist, what will AUC's P, Q, and profit? c) Calculate the CS, PS, and TS in the two situations described above. Is there a DWL from AUC's monopolistic behavior? If so, so large is it?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: Monopoly

Section: Chapter Questions

Problem 3PA

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