Assume an electric company has spent 3 billion on a nuclear power plant. It's producing at a price per kilowatt hour that is above its average variable cost. However, after 10 years the price remains below average total cost.
If there is no expectation that price will equal or rise above the average total cost what would you expect this company to do with its nuclear power plant? Why is the 3 billion not part of the decision? Explain.
Ques. 2Explain how price adjusts to eliminate excess demand.
What will be an ideal response?
Ques. 3Why is it not a contradiction to say that a firm is simultaneously earning an accounting profit but suffering an economic loss?
What will be an ideal response?
Ques. 4Maxine's Cookie Shop sells chocolate chip cookies in a perfectly competitive market for 2 per dozen. Maxine currently produces 200 dozen cookies per day and average total cost at this level of production is 1.75 .
What level of profit is this firm earning? Explain.
Ques. 5Explain the difference between price cap regulation in a natural monopoly and the effect of a price ceiling in a competitive market.
What will be an ideal response?
Ques. 6What incentive does price cap regulation attempt to give the firm? How does it give the firm this incentive?
What will be an ideal response?
Ques. 7Describe the main problem with rate of return regulation and name an alternative regulatory scheme that has been devised to deal with that problem.
What will be an ideal response?