QUESTION

Suppose that a particular customer has the following demand curve relating the quantity demanded (measured in Kilowatt hours, KWH) to the price of...

1.        Suppose that a particular customer has the following demand curve relating the quantity demanded

(measured in Kilowatt hours, KWH) to the price of electricity (measured in cents per KWH):

KWH = 1600 - 100*P

Note that an alternative way to represent the same relationship is in terms of the maximum price that

the customer would be willing to pay for each KWH of electricity, or P = 16 - .01*KWH

This customer's demand for electricity would, if plotted, look like Figure 1:

Now we will consider a number of rate schedules used by utilities, and we will examine their effects on electricity consumption and expenditure.

Question 1: Philadelphia Electric prices electricity using a simple flat rate of \$.08 per KWH. How much electricity would be demanded by a customer with the demand curve given above and who lives in Philadelphia? What would be her monthly bill?

Question 2: If the rate were lowered to \$.07, how much electricity would she buy? What would be her monthly bill in this case?