(1) An energy supply firm has the following demand curves for both domestic(m) a
ID: 1231851 • Letter: #
Question
(1) An energy supply firm has the following demand curves for both domestic(m) and commercial(c) consumers of its product:
Qm=40-5Pm
Qc=60-10Pc
The total cost function for the firm(C) is described by the following equation:
C(Q)=120+0.025Q2 , where Q= Qm+Qc
a) Determine the profit maximizing level of output to be produced and sold in each submarket.
b) What price should the firm charge in each submarket?
c) Evaluate the price elasticity of deman in each submarket and briefly comment on their relevance in the determination of the relative prices in in both markets.
Explanation / Answer
a. Qm=40-5Pm.....1 Qc=60-10Pc.......2 C(Q)=120+0.025Q2 , where Q= Qm+Qc .......3 profit = C(Q) - Pm.Qm - Pc.Qc substitute Qm and Qc and Q= Qm + Qc and equate to zero get answer b. put answer of a. in equation 1 and 2 to get prices c. easy, find dP/dQ for both equation 1 and 2. thats it please rate appreciated
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