Most public utilities (gas, electricity, water, and local telephone companies, for instance) are subject to rate of return regulation, under which a firm is allowed to choose its price, subject to its proving that it is not earning too much money. Typically, the firm is allowed to cover its expenditures for labor and material exactly and to earn a "fair" rate of return on its capital investment. Can you think of any problems with this sort of regulatory scheme? In particular, what do you think that this plan does to the firm's incentives to substitute capital for labor?
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- Most public utilities (gas, electricity, water, and local telephone companies, for instance) are subject to
rate of return regulation, under which a firm is allowed to choose its price, subject to its proving that it is not earning too much money. Typically, the firm is allowed to cover its expenditures for labor and material exactly and to earn a "fair" rate of return on its capital investment. Can you think of any problems with this sort of regulatory scheme? In particular, what do you think that this plan does to the firm's incentives to substitute capital for labor?
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- Based on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD: Demand: P= 1,200 - 10Q Total Revenue: TR = 1,2000 - 10Q Marginal Revenue: MR 1,200 - 200 Marginal Cost: MC = 300 + 100 where Q indicates the number of copies sold and Pis the price in Ectenian dollars. Complete the following table by finding the price and quantity that maximize the company's profit and the price and quantity that maximize social weifare. Price Quantity Scenario (Dollars) (DVDs) Maximizes the company's profit Maximizes social weifare The deadweight loss from the monopoly is S Suppose, in addition to the foregoing costs, the director of the fim has to be paid. The company is considering four options:Please read the article attached below titled “Notable & Quotable: Gouging” (March 31, 2020) and answer the given question. Note: The phrase “price-gouging” refers to a situation where some sellers are charging prices (e.g., for health equipment and supplies) that are well above the market price charged by other sellers. If firms are reluctant to raise prices and/or earn an economic profit in response to the coronavirus outbreak, explain why the usual mechanism for achieving “allocative” (or social) economic efficiency in a perfectly competitive industry breaks down. What does Professor Romer recommend to improve “allocative” efficiency during this extraordinary time of a pandemic? In your answer, be sure to explain what economists mean by “allocative” efficiency.The figure to the right shows the market demand for electricity and the average total cost and marginal cost of producing electricity for a utility company. Suppose the utility company is a regulated natural monopoly. If government regulators want to achieve economic efficiency, then they will regulate a price of $ —— per kilowatt hour. (Enter a numeric response using a real number rounded to two decimal places.)
- The government has announced its plans to license two firms to serve a market whose demand curve is given by P= 72-1Q The technology is such that each can produce any given level of output at zero cost, but once each firm's output is chosen, it cannot be altered. Instructions: Round your answers to the nearest penny (2 decimal places). a. What is the most you would be willing to pay for one of these licenses if you knew you would be able to choose your level of output first (assuming your choice was observable by the rival firm)? Skipped b. How much would your ival be willing to pay for the right to choose second?Suppose that the fish processor could use a different production method that involves recycling water. This would reduce the pollution in the lake to levels safe for recreation, and the boat tour would no longer be affected. If the fish processor uses the recycling method, then the fish processor's economic profit is $1,300 per week, and the boat tour's economic profit is $1,900 per week. If the fish processor does not use the recycling method, then the fish processor's economic profit is $1,600 per week, and the boat tour's economic profit is $1,100 per week. These figures are summarized in the following table. Complete the following table by computing the total profit (the fish processor's economic profit and the boat tour's economic profit combined) with and without recycling. Action Profit Fish Processor Boat Tour Total (Dollars) (Dollars) (Dollars) No Recycling 1,600 1,100 Recycling 1,300 1,900 Total economic profit is highest…Refer to Scenario below to answer the following questions. The government of Stratospheria is currently inviting investors to bid for the exclusive right to provide cable television service to its residents. The market demand for this service is P=55-0.01Q, where Q is the number of households that would subscribe to the cable service and P is the monthly fee charged to the subscribers. The associated marginal revenue curve is MR=55-0.02Q. Fun Cable Company is interested in bidding for the right to provide cable service in Stratospheria. It has a constant average and marginal cost of RM5 for providing cable service to each household. Question:1)What is the most Fun Cable Company would bid for the franchise?(please show the steps of calculation)
- Your task is to show what the profit of this firm might look like using a key economics diagram. To make graphing easier, we will consider the price of the Ozempic drug for the middle-income country Bangladesh, which is $38 (assumed the profit-maximising price). For this task, you will be required to illustrate and explain to a typical first-year undergrad student who has no economics background the profit the firm makes at $38 per month, and what has happened to profit (producer surplus), markup, consumer surplus and the output if the price was reduced from $38 to $10 per month.Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,00 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States. The demand for BMWs in each market is given by QE=4,000,000−100PE and QU=1,500,000−20PU where the subscript E denotes Europe, the subscript U denotes the United States. Assume that BMW can restrict U.S. sales to authorized BMW dealers only. a. What quantity of BMWs should the firm sell in each market, and what should the price be in each market? What should the total profit be? (round dollar amounts to the nearest penny and quantities to the nearest integer) In Europe equilibrium quantity is 1,000,000 cars at an equilibrium price of $30,000 In United States equilibrium quantity is 550,000 cars at an equilibrium price of $47,500 BMW makes a total profit of $15.125 billion. I Need help with this part: If BMW were forced…Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,00 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States. The demand for BMWs in each market is given by QE=4,000,000−100PE and QU=1,500,000−20PU where the subscript E denotes Europe, the subscript U denotes the United States. Assume that BMW can restrict U.S. sales to authorized BMW dealers only. a. What quantity of BMWs should the firm sell in each market, and what should the price be in each market? What should the total profit be? (round dollar amounts to the nearest penny and quantities to the nearest integer) In Europe equilibrium quantity is 1,000,000 cars at an equilibrium price of $30,000 In United States equilibrium quantity is 550,000 cars at an equilibrium price of $47,500 BMW makes a total profit of $15.125 billion. I Need help with this part: If BMW were forced…
- Suppose Bedox is a patent drug for man’s beauty. Her manufacturer faces a market demand for Bedox of Q = 1,000 – 0.2P. She has a cost function of C = 300,000 – 1,000Q + 10Q^2. What is the profit-maximizing output level and price? What is the profit? Show your calculation and the calculated results on a well-labeled diagram.Based on market research, a film production company in Ectenian obtains the following information about the demand and production costs of its new DVD:Demand: P = 1,000 – 10QTotal Revenue: TR = 1,000Q – 10Q2Marginal Revenue: MR = 1,000 – 20QMarginal Cost: MC = 100 + 10Qwhere Q indicates the number of copies sold and P is the price in Ectenian dollars.d. Suppose, in addition to the costs above, the director of the film has to be paid. The company is considering four options:i. A flat fee of 2,000 Ectenian dollarsii. 50 percent of the profitsiii. 150 Ectenian dollars per unit soldiv. 50 percent of the revenueFor each option, calculate the profit-maximizing price and quantity. Which, if any, of these compensation schemes would alter the deadweight loss from monopoly? ExplainSuppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,000 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States. The demand for BMWs in each market is given by QE = 4,000,000 - 100PE and Qu = 1,500,000 –- 20PU where the subscript E denotes Europe, the subscript U denotes the United States. Assume that BMW can restrict U.S. sales to authorized BMW dealers only. a. What quantity of BMWs should the firm sell in each market, and what should the price be in each market? What should the total profit be? (round dollar amounts to the nearest penny and quantities to the nearest integer) In Europe, the equilibrium quantity is cars at an equilibrium price of $ While in the United States, the equilibrium quantity is cars at an equilibrium price of $ BMW makes a total profit of S