The above figure illustrates the market for electric power that is served by the one utility in Alberta, Canada
a. If the government did not regulate this utility, what would be the price of a kilowatt hour in this region and how much power would be generated?
b. If the government regulates the utility and chooses an average cost pricing rule, what would be the price of a kilowatt hour and how much power would be generated?
c. If the government regulates the utility and chooses a marginal cost pricing rule, what would be the price of a kilowatt hour and how much power would be generated?
a. The price would be 12¢ a kilowatt hour and 20 megawatts per hour would be generated.
b. The price would be 8¢ a kilowatt hour and 30 megawatts per hour would be generated.
c. The price would be 4¢ a kilowatt hour and 40 megawatts per hour would be generated.
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Collusion makes firms better off because if they act as a single entity (a cartel) they can reduce output and increase their prices and profits. But some cartels have failed and others are unstable
Which of the following is a reason why cartels often break down? A) Most cartels do not have a dominant strategy. B) Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement. C) Members of a cartel may resent having to share their profits equally. D) When a cartel is profitable the amount of competition it faces increases.
Suppose market demand is p = 10 - Q. Firms have a fixed entry cost of 5 and no marginal cost. If firm A is the incumbent, can it deter the entry of its rival, firm B?
What will be an ideal response?