The Market

The Kenya Power Supplies Company Ltd. Is the role of electricity in Kenya. This commodity is purchased by two separate consumers, namely (i) commercial users and (ii) domestic users, to whom the company is able to charge different prices or tariffs. Assuming that the major goal of the company is to maximize profits:

(a) How should the company allocate its total output of electricity between the two groups of consumers? (12 marks)

(b) Which group is likely to be charged a higher price? Explain clearly the reasons for your
answer. (4 marks)

(c) What conditions make it possible for the company to change different prices for the same product? (4 marks)
(Total: 20 marks)