Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 10

Moses Inc. is a small electric company that provides power to customers in a small rural area in the Southwest. The company is currently maximizing its profits by selling electricity to consumers at a price of $0.15 per kilowatt hour Its marginal cost is $0.05 per kilowatt hour, and its average cost is $0.15 per kilowatt hour. A government regulator is considering a proposal to regulate the firm's price at $0.05 per kilowatt hour. Would such a policy improve social welfare? Explain.