7 Regulation and Ramsey Pricing (6 points) A natural gas LDC in a certain region

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7 Regulation and Ramsey Pricing (6 points) A natural gas LDC in a certain region has two types of costumers: residential (R) and commercial (C). Their demands are given by QR- 2 PR and Qc1 Pc, where bot QR and Qc are in millions and P is in dollars. The firm's only cost is a fixed cost of 1 million dollars. a. (2 points) In general, regulation of natural monopolies is about achieving a second-best outcome. How do Ramsey prices fit this logic? b. (3 points) Given the above demands, derive the Ramsey prices. c. (1 point) Apart from natural monopoly regulation, what are some other contexts in which Ramsey prices can be used?

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7 Regulation and Ramsey Pricing (6 points) A natural gas LDC in a certain region has two types of costumers: residential (R) and commercial (C). Their demands are given by QR- 2 PR and Qc1 Pc, where bot QR and Qc are in millions and P is in dollars. The firms only cost is a fixed cost of 1 million dollars. a. (2 points) In general, regulation of natural monopolies is about achieving a second-best outcome. How do Ramsey prices fit this logic? b. (3 points) Given the above demands, derive the Ramsey prices. c. (1 point) Apart from natural monopoly regulation, what are some other contexts in which Ramsey prices can be used?

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