Suppose a municipal water utility must pay $250,000 per month for its quasi-fixed capital inputs, the water treatment plant and distribution lines to homes. The figure below shows the cost structure of this utility for various levels of water service. Quantity of water consumption is measured in 1,000-gallon units per month. AQFC is the average quasi-fixed cost curve, and LAC is long-run average cost. Long-run marginal cost, LMC, is constant and equal to $2 per 1,000-gallon unit. The inverse demand equation is P = 26 - 0.00048Q_d.a. Find the value of costs in each of the blanks a through d in the figure.b. When one firm produces 50,000 units of water service per month, the long-run total cost is $__________ per month.c. If two equal-sized, but separate, water utilities provide the community with 50,000 units of water per month, the long-run total cost is $ __________.

d. At 50,000 units per month, are costs sub additive for municipal water service?e. Over what range of output, if any, are there economies of scale in municipal water service?

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14 10 9.10 6.25 LAC AQFC LMC MR D | 40,000 35,206 25,000 50,000 Quantity (1,000-gallon units per month) Pri ce and cost (dalars per 1,000-gallon unit) of