Question

There are 1010 households in Lake​ Wobegon, Minnesota, each with a demand for electricity of Upper Q equals 60 minus Upper PQ=60−P. Lake Wobegon​ Electric's (LWE) cost of producing electricity is TC equals 575 plus 2 Upper QTC=575+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.)

Answer 1

The answer is provided below

Step-by-step explanation:

If the regulators of LWE want to make sure that there is no deadweight loss in this​ market, they would impose a price of $1 at the point the marginal cost cross the demand curve.

If a price of $1 is imposed, the quantity (Q) = 60 - P = 60 -1 = 59 per customer. The profit would be $1 * 59 * 1010 - (575 + 2(59*1010)) = -$60165. There wound need to subsidize about $60165 so as to operate at this price.

consumer surplus = 0.5 * 59 * 59 = 1740.5 per customer to give a total of 1757905 (1740.5 * 1010)