Question

There are 10 households in Lake​ Wobegon, Minnesota, each with a demand for electricity of

Upper Q=50-PLake Wobegon​ Electric's (LWE) cost of producing electricity is TC=550+2. TC=550+2Q.

a. If the regulators of LWE want to make sure that there is no deadweight loss in this​ market, what price will they force LWE to​ charge? What will output be in that​ case? Calculate consumer surplus and​ LWE's profit with that price. ​(Round all responses to two decimal​ places.)

The regulated price would be $____? ​And the firm would produce __ units of electricity.

Total consumer surplus would be ​$ ___,and the firm would earn a $___ profit.

Answer 1

Given

TC=550+2Q

Marginal Cost=dTC/dQ=2

DWL will be zero if P=MC=2

Total demand is given by

Qd=5*Individual demand=10*(50-P)=500-10P

Total output will be equal to total demand at P=2

Qd=500-10P=500-10*2=480

Total Revenue=P*Q=2*480=960

Total Cost=TC=550+2Q=550+2*480=$1510

Profit=TR-TC=960-1510=-$550

For finding the consumer surplus first find the price at which quantity demanded is zero.

Qd=0

500-10P=0

P=50

CS=1/2*(50-2)*(480-0)=$11520

Regulated price will be $2 and firm would produce 480 units of electricity

Total consumer surplus will be $11520 and firm would earn a profit of -$550