Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Question
Chapter 11, Problem 9E
a)
To determine
To Evaluate: The return of assets will earn OIPC if the OIPC has proposed a rate for each customers of $250 per year and also if the given rate is approved.
b)
To determine
To Evaluate: The rate can charge if the commission wants to limit the return on assets to 11 percent.
c)
To determine
To describe: The problem of utility regulation of the given exercise illustrate.
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The Odessa Independent Phone Company (OIPC) is currently engaged in a rate case that will set rates for its Midland-Odessa area customer base. OIPC has total assets of $20 million. The Texas Public Utility Commission has determined that an 11 percent return on assets is fair. OIPC has estimated its annual demand function as follows:
P=$3,514-$0.08Q
Its total cost function ( Not Including the cost of capital) is
TC=$2,300,00+$130Q
OIPC has proposed a rate of $250 per year for each customer. If this rate is approved, OIPC will earn a percent return on assets?
If the commission wants to limit the return on assets to 11 percent, OIPC can either charge per year for each customer and serve fewer customers than under its proposed rate of $250, or it can charge per year for each customer and serve more customers than under its proposed rate of $250.
denton productions limited utilizes statistical analysis to determine the optimal price for its sales to customera, during july 2020, the company was provided with the following demand and cost functions by a statistical research company,
p=200-6Q, where p=price in dollars; and Q=quantitity of units in thousands
TC=5Q2 + 24Q + 150, where TC is total costs in thousands of dollars
a. determine the maximum sales revenue
b. calculate the maximum profit
Q. The Ali Baba Co. is the only supplier of a particular type of Oriental carpet. The estimated demand for its carpets is
Q = 112,000 – 500P + 5M
Where Q = number of carpets, P = price of carpets (dollars per unit), and M = consumers’ income per capita. The estimated average variable cost function for Ali Baba’s carpets is
AVC = 200 – 0.012Q + 0.000002Q2
Consumer’s income per capita is expected to be $20,000 and total fixed cost is $100,0000.
a. How many carpets should the firm produce to maximize profit?
b. What is the profit-maximizing price of carpets?
c. What is the maximum amount of profit that the firm can earn selling carpets?
d. Answer parts a through c if consumers’ income per capita is expected to be $30,000 instead.
Chapter 11 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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