The Electric Company is under review by a state regulatory commission. Relevant revenue and cost curves including a Afair rate of return agreed upon by both the firm and the commission are as follows:
P=$85-$0.2Q (Demand)
MR=∂TR/∂Q=$85 - $0.4Q (Marginal Revenue)
TC =$900 +$20Q + $0.8 Q2 (Total Cost)
MC= ∂TC/∂Q=$20 +$1.6Q (Marginal Cost)
where P is price (in dollars), Q is output (in thousands of megawatt hours) and TC is total cost (in thousands of dollars).
1. If the firm were operating as a pure monopoly, what would be its optimal price/output solution and level of economic profits?
2. What price should be set if the commission wishes to eliminate economic profits?