Question: A state owned company is providing electricity at the price of $0.105and faces the demand for electricity P=1.255-0.001Q. The company has a cost function C(Q)=100.625+0.105Q. The state sells the firm, now the firm's only goal is profit maximization.
a. What is the number of kilowatt hours of electricity produced and what is the price that the company will charge?
b. Compute the price elasticity at the profit maximizing price combination.
c. How much more profit will this firm make as a result of privatization.