Monopoly Regulation. The Hoosier Gas Company, a utility serving customers in Bloomington, Indiana, is currently engaged in a rate case with the regulatory commission under whose jurisdiction it operates. At issue is the rate the company will charge per mcf usage of natural gas. The demand curve for monthly service is P = $6.75 - $0.000375Q. This implies annual demand and marginal revenue curves of:

where P is mcf price in dollars and Q is the units of mcf used, in thousands. Total and marginal costs per year (before investment return) are described by the function:

The company has assets of $1 million and the utility commission has authorized an 11% return on investment.

Question

Monopoly Regulation. The Hoosier Gas Company, a utility serving customers in Bloomington, Indiana, is currently engaged in a rate case with the regulatory commission under whose jurisdiction it operates. At issue is the rate the company will charge per mcf usage of natural gas. The demand curve for monthly service is P = $6.75 - $0.000375Q. This implies annual demand and marginal revenue curves of:
 
 where P is mcf price in dollars and Q is the units of mcf used, in thousands. Total and marginal costs per year (before investment return) are described by the function:
 
The company has assets of $1 million and the utility commission has authorized an 11% return on investment.

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The Answer of Monopoly Regulation. The Hoosier Gas Company, a utility serving customers in Bloomington, Indiana, is currently engaged in a rate case with the regulatory commission under whose jurisdiction it operates. At issue is the rate the company will charge per mcf usage of natural gas. The demand curve for monthly service is P = $6.75 - $0.000375Q. This implies annual demand and marginal revenue curves of:
 
 where P is mcf price in dollars and Q is the units of mcf used, in thousands. Total and marginal costs per year (before investment return) are described by the function:
 
The company has assets of $1 million and the utility commission has authorized an 11% return on investment.