Question

Enrodes is a monopoly provider of residential electricity in a region of northern Michigan. Total demand by its 3 million households is Qd = 1,200 - 2P, and Enrodes can produce electricity at a constant marginal cost of $6 per megawatt hour. Consumers in this region of Michigan have recently complained that Enrodes is charging too much for its services. In fact, a few consumers are so upset that they’re trying to form a coalition to lobby the local government to regulate the price Enrodes charges. If all the consumers of this region joined the coalition against Enrodes, how much would each consumer be willing to spend to lobby the local government to regulate Enrodes’s price?

Enter your response rounded to the nearest penny (two decimal places).

$ __

Answer 1

For Monopoly

MR=MC

MC=6 (given)

Q=1200-2P

TR=Q*P

TR=1200P-2P^2

so MR=1200-4P

MR=MC

1200-4P=6

1194=4P

so P=298.5 (1)

When consumers form coalition; they want to pay price equal to marginal cost of the product

As, P=MC

P=6 (2)

Consumers were earlier paying (1) now with coalition they do not want to pay more than (2) to producer.

So, Maximum amount consumers will spend on lobby=(1)-(2)

=298.5-6

=292.5