Monopoly Regulation. The Black Hills Telephone Company, a utility serving rural customers in South Dakota is currently engaged in a rate case with the regulatory commission under whose jurisdiction it operates. At issue is the monthly rate the company will charge for call waiting service. The demand curve for this monthly service is P = $6.25 - $0.00025Q. This implies annual demand and marginal revenue curves of:

where P is service price in dollars and Q is the number of customers served. Total and marginal costs per year (before investment return) are described by the function:

The company has assets of $100,000 used for call waiting services and the utility commission has authorized a 12% return on investment.

Question

Monopoly Regulation. The Black Hills Telephone Company, a utility serving rural customers in South Dakota is currently engaged in a rate case with the regulatory commission under whose jurisdiction it operates. At issue is the monthly rate the company will charge for call waiting service. The demand curve for this monthly service is P = $6.25 - $0.00025Q. This implies annual demand and marginal revenue curves of:
 
where P is service price in dollars and Q is the number of customers served. Total and marginal costs per year (before investment return) are described by the function:
 
The company has assets of $100,000 used for call waiting services and the utility commission has authorized a 12% return on investment.

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The Answer of Monopoly Regulation. The Black Hills Telephone Company, a utility serving rural customers in South Dakota is currently engaged in a rate case with the regulatory commission under whose jurisdiction it operates. At issue is the monthly rate the company will charge for call waiting service. The demand curve for this monthly service is P = $6.25 - $0.00025Q. This implies annual demand and marginal revenue curves of:
 
where P is service price in dollars and Q is the number of customers served. Total and marginal costs per year (before investment return) are described by the function:
 
The company has assets of $100,000 used for call waiting services and the utility commission has authorized a 12% return on investment.