The Utilities Commission in a City Is Currently Examining Pay

question 124

Essay

The utilities commission in a city is currently examining pay telephone service in the city. The commission has been asked to evaluate a proposal by a city council member to place a $0.10 price ceiling on local pay phone service. The staff economist at the utilities commission estimates the demand and supply curves for pay telephone service as follows:
Q_D = 1600 - 2400P
Q_S = 200 + 3200P,
where P = price of a pay telephone call, and Q = number of pay telephone calls per month.
a. Determine the equilibrium price and quantity that will prevail without the price ceiling.
b. Analyze the quantity that will be available with the price ceiling (in the long-run).
c. The city council realizes that the telephone company could curtail pay phone service in response to the ceiling. To prevent this, the council plans to impose a requirement that the telephone company must maintain the current number of pay phones. In light of this additional restriction, what will be the likely impact of the price ceiling?

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Definitions:

Product Line

A group of related products marketed by a company under a single brand name.

News Conference

A media event in which newsmakers invite journalists to hear them speak and, typically, ask questions.

Publicity Tool

Methods or strategies used by businesses to generate public visibility or awareness for their products, services, or brand without direct advertising.

Point-of-Purchase Display

A specialized form of sales promotion located near, on, or next to a checkout counter (the point of purchase) designed to attract customer attention and stimulate sales.