Natural monopoly

Pagina 1

Question 1. In a natural monopoly, a firm serves two groups of customers with different demand profiles. For group 1, the demand curve is: p1=10-q1 For group 2, the demand curve is: p2=8-8q2 The total cost function for the utility is TC(q1,q2)=100+2q1+2q2 The price set by the monopolist are p1=5 and p2=4. Do these prices meet the second best Ramsey solution? Question 2. A electricity utility serves two groups of customers with different demand profile. For group 1, the demand curve is: p1=100-q1 For group 2, the demand curve is: p2=60-q2/2 The total cost function for the utility is TC(q1,q2)=100+2q1+2q2 An independent agency wants to meet a breakeven constraint to encourage a firm to produce for both types of consumers. What should be the prices in this case? What is the welfare in this case? Demonstrate that the welfare is the maximum possible if prices are linear (i.e. without any 2 parts tariff). Question 3. A monopolist faces a demand curve: p=300-5q. The total costs function is TC(q)=1000+5q2. Determine the price and quantity at the equilibrium. Quantify the deadweight loss and the monopolist profit. How your answers change if the monopolist introduces a two part tariff if you know that the monopolist has 100 customers? Question 4. The demand for electricity is Qd =5-Pp in peak periods and Qn =4-2Pn in off-peak periods. Variable cost is 0.25 per unit of output per period and capital cost capacity are 0.75 per unit of capacity per day. Capacity costs are sunk and cannot be adjusted between periods. (a) Find the optimal capacity, peak price and off-peak price if the firm sets the prices. (b) Find the optimal capacity, peak price and off-peak price if an independent agency sets the prices. (c) Compare the welfare in the two cases. Consider a market with market demand…