Breckner Gas Company faces a demand for their gas given by P = 30 - 0.25Q.It has total costs (exclusive of the required rate of return on its invested capital)of TC = -60 + 8Q + 0.75Q².If the commission that regulates Breckner determines that $100 is sufficient to compensate equity holders for their invested capital,what are the regulated price and output?

Question

Quizplus · Accepted Answer

To find the regulated price and output, we need to determine the output level where the firm covers its total costs including the required return on capital. The total cost including the required return is TC = -60 + 8Q + 0.75Q^2 + 100. Setting this equal to total revenue (TR = P*Q = (30 - 0.25Q)Q), we solve for Q. The solution gives Q = 20. Substituting Q = 20 into the demand equation gives P = 25.

Breckner Gas Company Faces a Demand for Their Gas Given