A large power plant pravides electricity for Boulder, Colorado. The power plant

Question

A large power plant pravides electricity for Boulder, Colorado. The power plant hes decressing average total costATC throughaut the demand for e ectricity. The monthly margin. cost IMC), sve ge total coat (ATC mo th demand, end marg!nal evenue (MR) 5 howm In the table and graph belaw. MR dollars) MC (dollars) ATC KwH) KwH) Natural Moncpoly -Electriolty Quantity [miltions of KnH par month milion KwH, the monopoly 5. fthe owner of the power plent 5be to 5ct pure monopolist, the monopoly qu5 orice la $ per KWH, and the ceshveight loss from 5cting monopolat S b. Suppose the City of Boulder decdes to regulate tne el :ty producer such that t mskes ony·no producer only mske" normal prof. t would produce milion Kwhind charg" price of $ the electricity si oro c Suppose the City of Boulder recona ders ts regulstion and decdes to force the electrictity producer to produce the sllacstvely eficient quantity of electricity 5na cnrge the regulated competitve price·ft produces the elocstvey emcert quentty, then the electricity producer wf produce to Keep the plant open, t would nave to aubGlaze the electricity producer $ milion Kwti end chorg" price per KwH. However, Ifthe City of Boulder wants miliar, per month so that it stays in business.

Explanation / Answer

a) Monopoly quantity is = 7 million KwH. ( where Mr=MC)

monopoly price = $0.45 per KwH ( where MR=MC)

deadweight loss = $0.9 Million.

b) normal profit is acquired in long run equilbruim. and it is P = ATC

so, quantity = 10 millions KwH.

price is= $0.30 per Kwh.

c) allocative efficient quantity is where P=MC

so, quantity = 13 million Kwh

price is $= 0.15 per Kwh.

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