Question

Recall the water utility in the seventh team exercise. As before, the inverse demand for water is P = 48.13 - 1.75Q, in which P is the price ($ per acre foot) of water and Q is the quantity of water demanded (million acre-feet of water per year). The utility's marginal cost of acquiring and distributing the water is MC(Q) = 5.78 dollars per million acre-feet of water, and its fixed cost, F, is $147 million per year. Specify units of measure below. a. (6 pts.) If the government regulates the utility to charge a price equal to its average cost, how much water to the nearest first decimal will the utility sell, and what price to the nearest second decimal will it be able to charge? You will use the quadratic formula. b. (6 pts.) How much is the consumer surplus and the producer surplus? Is the total surplus with average-cost pricing higher than the total surplus with unregulated monopoly pricing?

          Recall the water utility in the seventh team exercise. As before, the inverse demand for water is P = 48.13 - 1.75Q, in which P is the price ($ per acre foot) of water and Q is the quantity of water demanded (million acre-feet of water per year). The utility's marginal cost of acquiring and distributing the water is MC(Q) = 5.78 dollars per million acre-feet of water, and its fixed cost, F, is $147 million per year. Specify units of measure below.

a. (6 pts.) If the government regulates the utility to charge a price equal to its average cost, how much water to the nearest first decimal will the utility sell, and what price to the nearest second decimal will it be able to charge? You will use the quadratic formula.

b. (6 pts.) How much is the consumer surplus and the producer surplus? Is the total surplus with average-cost pricing higher than the total surplus with unregulated monopoly pricing?

Added by Hugo S.

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