Utility Price and Profit Regulation Example

To further illustrate the concept of public utility regulation, consider the case of the Malibu Beach Telephone Company, a small telephone utility serving urban customers in southern California. At issue is the monthly rate for local telephone service. The monthly demand for service is given by the relation

where P is service price in dollars and Q is the number of customers served. Annual total cost and marginal cost curves, excluding a normal rate of return, are given by the following expressions:

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