ECON.551

Question 1

Equity capital is what the California Electric owners have put in to the company to buy the assets being used . Thus if the reduction of the equity capital means that efficiency is reduced it will be necessary for the electric firm to sell its shares to the general public to access more capital to install better machines to give better services thus increase the utility of electricity to the general public (Robert , 2004

Question 2

a ) The demand function is Q 45-5P

Find the price level first which is

5P 45-Q thus (5P 45-Q /5 then

br 9-1 /5Q where 1 /5 0 .2 Thus

9-0 .2Q TR (9-0 .2Q Q

TR 9Q -0 .2Q2

br TC 12 5Q

Profit TR-TC

P 9Q -0 .2Q2 - (12 5Q ) thus

9Q-0 .2Q2 -12-5Q ?

?Q 9- 0 .4Q- 5

0 9-0 .4 Q-5 whereby 0 .4Q 9-5 thus 0 .4Q /0 .4 4 /0 .4

Q 10 the profit maximizing quantity

Price therefore is 9- (0 .2 10 ) thus the profit maximizing price is

7

Profit is therefore 9 10-0 .2 10 10-12-5 10 where 90-20-12-50 Profit maximization 8

b ) Tax t Q whereby the tax is 10 then , T 10Q the tax is introduced on the Marginal cost (MC ) thus MC 5 T thus 5 10Q whereby the marginal revenue (MR ) is 9-0 .4Q the profit maximizing point is where...