John Gardner is the city planner in a medium-sized city. The city is considering proposal to award...

John Gardner is the city planner in a medium-sized city. The city is considering proposal to award an exclusive contract to Clear Vision, Inc., a cable television carrier. Mr. Gardner has discovered that an economic planner hired a year before has estimated the following inverse demand and total cost functions:

P = 28 – 0.0008Q

C = 120,000 + 0.0012Q

Conditions change very slowly in the community so that Mr. Gardner considers the cost and demand functions to be reasonably valid for present conditions. Mr. Gardner knows relatively little economics and has hired you to answer the questions listed below:

a. What price and quantity would be expected if Clear Vision, Inc. is allowed to operate completely unregulated?

b. Mr. Gardner has asked you to recommend a price and quantity that would be socially efficient. Recommend a price and quantity to Mr. Gardner using economic theory to justify your answer.

c. Compare the economic efficiency implications of sub-questions (a) and (b) above. Calculate the CS, PS, and DWL in both the unregulated scenario and regulated scenario using your recommended price and quantity in (b).

Expert Solution

Rahul Sunny answered 2 years ago

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