The Public Service Company of the Southwest is regulated by an elected
state utility commission. The firm has total assets of $500,000. The
demand function for its services has been estimated as
P = $250 - $.15Q (notice that the coefficient before Q is 15 cents
not 15 dollars)The firm faces the following total cost function:
TC = $25,000 + $10Q
In an unregulated environment, what price would this firm charge, what
output
would be produced, what would total profits be, and what rate of
return would the firm earn on its asset base? |