In class we discussed rate packages R={M,(w1,r1),(w2,r2),} with fixed fee M as well as block rates where rate ri comes into play at water use level wi and continues until w=wi+1. The utility incurs both fixed costs C as well as marginal costs MC. Consider the following figure, with two representative households, where letters ag refer to areas in the figure. (a) Consider rate packages RUR={MUR,(0,p2)} and RIBR={MIBR,(0,p1),(w1,p2)}. Determine the change in consumer surplus received by households A and B when the utility switches from UR to IBR. (1pt). (b) Define M=MIBRMUR. Suppose we impose Revenue neutrality. Explain whether M is positive or negative. (1pt). (c) Using your answers to (a) and (b), determine the total change in their water bill to each consumer when switching from UR to IBR. (1pt). (d) Who gains more (or loses less)? (2pt). (e) Bonus question: Is it possible that A or B is worse off under IBR compared to UR? (1pt). In class we discussed rate packages R={M,(w1,r1),(w2,r2),} with fixed fee M as well as block rates where rate ri comes into play at water use level wi and continues until w=wi+1. The utility incurs both fixed costs C as well as marginal costs MC. Consider the following figure, with two representative households, where letters ag refer to areas in the figure. (a) Consider rate packages RUR={MUR,(0,p2)} and RIBR={MIBR,(0,p1),(w1,p2)}. Determine the change in consumer surplus received by households A and B when the utility switches from UR to IBR. (1pt). (b) Define M=MIBRMUR. Suppose we impose Revenue neutrality. Explain whether M is positive or negative. (1pt). (c) Using your answers to (a) and (b), determine the total change in their water bill to each consumer when switching from UR to IBR. (1pt). (d) Who gains more (or loses less)? (2pt). (e) Bonus question: Is it possible that A or B is worse off under IBR compared to UR? (1pt)