You are in charge of strategic pricing department for a national electricity company (monopoly). According to past calculations the daily demand for electricity is based on the following equation:
According to past research this relationship can be numerically defined as follows:
1. Assume that the average consumer income is 10000, the price of electricity is 2, and the price of water is 1. Find the own-price, income, and cross-price elasticities for the average consumer. Discuss your findings.
2. Draw the demand graph for the average consumer (Income=10000) when the price of water is 1. State under which conditions the demand is elastic or inelastic or unit elastic.
3. Draw the Marginal Revenue graph for the average consumer (Income=10000, Water Price=1). If the marginal cost of electricity production is constant at 1,
- What be optimal production level to maximize profits?
- What will be the price charged to the average consumer?
- Find the Consumer Surplus (CS), Producer Surplus (PS), and Total Surplus (TS) under monopoly.
- Also calculate the profit maximizing price, quantity, CS, PS, TS for competitive market.
Write a 3-5 page academic report on your findings. Your report should follow the academic format that we use:
Title (Decide on a Title That Fits Content)
Introduction
Write 1 – 2 introductory paragraphs here. Include an objective summary.
Analysis
The analysis content is expected to be about 2 or 4 pages. You can add subtitles under this heading.
Discussion
Include a subjective summary/discussion of your analysis.
References
We will use APA style for references. Include at least 7 references, where a minimum will be one reference from publications of Dr.Osman Gulseven on Google Scholar https://scholar.google.co.jp/citations?user=FebOm7IAAAAJ&hl=en. You do not have to read the entire article; you can simply read the abstract and cite it accordingly. Please include in-text citation.
