Question

Suppose the demand for electricity is given by P = 100 - 2Q, and the supply schedule is given by P = 10 +

4Q.

a) Determine the equilibrium P & Q in this market. Calculate CS, PS, and TS.

Now suppose that producing electricity entails emission of pollutants, which generate external costs

constant at $6 per unit.

b) What is the efficient quantity of electricity provision? Calculate TS at this level of provision.

What is the efficiency loss if the market is left to its own devices (part (a))?

c)

What Pigouvian tax could you impose to get the market allocation to be efficient? Show your

work.

Answer #1

Suppose that demand for electricity is given by P= 400 -(Q) ,
where Q is the quantity kilowatt hours demanded and
P is the price of electricity. The marginal private cost
of electricity production is: MC(Q) = 100 +1/2Q . Assume that
electricity production exposes an external cost on society of
$30 per kWh. There are no marginal external
benefits from the consumption or production of electricity.
1. Find the efficiency quantity of electricity.
2. Find the efficient price per...

Suppose that demand for electricity is given by
P(Q)=400-Q
where Q is the quantity kilowatt hours demanded and P is the
price of electricity. The marginal private cost of electricity
production is:
MC(Q)=100+.5Q
Assume that electricity production exposes an external cost on
society of 30 per kWh. There are no marginal external benefits from
the consumption or production of electricity.
1. Find the efficiency quantity of electricity
2. Find the efficient price per kWh of electricity
3. Calculate the deadweight...

Suppose that our local power station burns coal to generate
electricity. The demand
and supply functions for electricity are given by P = 12−0.5Q
and P = 2+0.5Q, respectively.
However, for each unit of electricity generated, there is an
externality. Suppose MEC = 1.
(a) Find the free market equilibrium and illustrate it
geometrically.
(b) Calculate the efficient (i.e. socially optimal) level of
production.
(c) Calculate the deadweight loss.

Q=-20+2p P=100-q
: Suppose, Congress passed a resolution to curb drinking among
Americans (a weaker version of Prohibition). And the Senate and
House have different ideas regarding how to impose the tax. 1. The
House, controlled by the Democrats, wants to tax the producers of
Whiskey and plans to impose a $5 tax on the whisky producers (the
rich).
a) Solve for the equilibrium with the House proposed tax (there
should be two prices, the price consumers pay, and the...

1. Suppose that weekly demand for wheat in Australia is given by
P = 1800 – 2Q, and supply is given by P = 4Q, where Q represents
tonnes of wheat. The government has decided to impose a price
ceiling of $800 per tonne. This suggests that _________ of
_________ will result in this market. Following the price ceiling,
producer surplus will _______ by_______.
a. neither excess demand or excess supply, 0 tonnes, not
increase or decrease, $0.
b. excess...

Suppose the demand for a product is given by P = 60 –2Q. Also,
the supply is given by P = 10 + 3Q. If a $10 per-unit excise tax is
levied on the buyers of a good, after the tax, the total amount of
tax paid by the consumers is

Consider the market for electricity in New York State. Suppose
that the demand for electricity is given by Q=16-0.2P (P=80-5Q)
where Q is measured in billions of kwh and P is measured in cents.
The marginal cost of producing electricity in NYS is MC=5+Q.
If the electricity industry is perfectly competitive, what is
the equilibrium price and quantity of electricity? Graph this.
If instead there are a small number of firms who are able to
collude in this market, what...

Suppose the market demand for a good is given by P = 60 – 2Q.
Also, there is an incumbent firm already in the market, and a
potential entrant. Let’s call the incumbent firm Firm 1, and the
potential entrant Firm 2. Each firm has an identical Total Cost of
production given by TC = 128 +4q, where q is the quantity of output
produced by that firm. MC for each firm = 4.
a) What is Firm 2’s Best...

The demand and supply for Fuji apples are given by
QD = 17,500 - 25 P and
QS = 10 P, where P is price
per pound and Q is pounds of apples. What is the consumer
surplus and producer surplus at the equilibrium?
A.
CS = $500,000; PS = $1,250,000
B.
CS = $750,000; PS = $1,250,000
C.
CS = $500,000; PS = $750,000
D.
CS = $1,250,000; PS = $500,000
The market for plywood is characterized by the...

A power plant’s fuel costs are given by: TC=10+4Q+2Q^2. Here Q
represents kilowatt-hour of electricity produced. The firm can sell
electricity on the wholesale market for $20 per kilowatt-hour.
Calculate the total fixed costs, average total costs, and
marginal cost functions (you can just use a table for the first 6
values), as well as marginal revenue.

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