Assume that a single electricity utility serves two 2 consumer blocks Block 1 is low consumption, Block 2 is high consumption Utility's cost function, C (y + y) = F + m(y + y), where F is Fixed Cost ($), m is marginal cost ($/MWh), yi (MWh) is consumption of Block i (i=1,2) Inverse Demand Functions: p = y + a (i=1,2) i where p ; ($/MWh) is unit price of electricity for consumers of Block i Hence, Consumer Surplus ($), CS = 0.5 y (a p ) = 0.5 (a p ) Total Consumer Surplus, CS = CS + CS i 1 Parameters: F = 2; m = 0.1; a = 1.8; a 2 = 2.5 1 (1) Assume Block 1 is sole consuming Block, i.e., y = 0. Compute lowest price, if it exists, for Block 1 such that utility breaks even, i.e., earns enough to cover cost (2) Repeat (1) for case where Block 2 is sole consuming Block Compute Block 2's lowest price, if it exists, such that the utility breaks even (3) Now assume that both Blocks consume - min 1 (a) Allowing Block 2's price to vary, what is lowest price for Block 1, p that the utility breaks even? And in this case, what is Block 2's price? (b) In this case what are the consumer surpluses, CS , CS2 and CS? (4) If p = 1.1 compute p 2 such that utility breaks even, also CS , CS2 and CS (5) Comparing results for (3) and (4), comment on the tradeoff in terms of equity and aggregate welfare as given by CS " such