Question
. Kansas City Power & Light Company has the following residential electricity rates for winter, rounded to the nearest cent: Fixed fee of $9 per
. Kansas City Power & Light Company has the following residential electricity rates for winter, rounded to the nearest cent: Fixed fee of $9 per month, plus the following: First 600 KWH per month @ 11 cents each Next 400 KWH per month @ 7 cents each Over 1000 KWH per month @ 5 cents each During the summer months, the rates for electricity are: Fixed fee of $9 per month, plus the following: 12 cents per KWH per month Suppose your monthly demand for electricity in KWH is Q = 1200 - 60P (price is in cents). a. What is your total consumer surplus in a winter? b. What is your total consumer surplus in a summer month? c. Suppose you move to a larger apartment at the end of summer and to save money you take on a roommate. Your demand for electricity in the large apartment is now Q = 1800 - 60P (price is in cents), and the Kansas City pricing schedule above still applies Your new roommate is confused about the summer and winter price schedule. He mistakenly thinks the average price per KWH on your first winter bill is the marginal price. What is your first winter bill (assuming you continue to engage in marginal decision making)? What would be your first winter bill if, instead, you made your consumption decision based on average cost per KWH When decisions are based on average rather than marginal prices, describe the nature of the pricing structure that would lead to overconsumption; to underconsumption; and no difference
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