Assignment:
Cable co: Demand curve for monthly service:
P = $37.50 - $0.0005Q.This implies annual demand and marginal revenue curves of:
P = $450 - $0.006Q
MR = $450 - $0.012Q
where P is service in dollars and Q is no. of customers served.Total and marginal costs per year(before investment return) are described by the function:
TC = $4,275,000 + $75Q + $0.0015Q^(squared)
MC = $75 + $0.003Q
The co.has assets of $1.5 million and the utility commission has authorized a 15% return on investment.
1. Calculate profit-max price (monthly and annually), output, and rate of return levels.
2. What monthly price should commission grant to limit cable co. to a 15% rate of return? (please explain all steps used in calculation)