Question
onsider the market for electricity - suppose demand in megawatt hours is given by Q=50-P and marginal private cost of generating electricity is $10.Further, electricity
onsider the market for electricity - suppose demand in megawatt hours is given by Q=50-P and marginal private cost of generating electricity is $10.Further, electricity production generates smoke in direct proportion to amount of electricity generated and creates a public health damage of $15 per mwh generated.
Do the following problems, drawn on a separate sheet of paper or document, and indicate clearly your response.Answers I cannot read will not be graded.
a)(2pt) Graph and identify the price of electricity charged and quantity produced if electricity is produced under conditions of perfect competition (hint: set demand curve = marginal cost).
b)(3pt) Graph on same graph the monopoly version:identify the price of electricity charged and quantity produced if electricity is produced under conditions of anunregulatedmonopolist (hint: set MR=MC to solve, where total revenue = (50-Q)Q so that MR=50-2Q).
c)(8pt) Now add the social marginal cost curve thatincorporates the externality of $15/mwh.Identify the DWL triangles for scenario a) and scenario b) on the graph and state the numerical values for DWL under a) and under b) in the space below.
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