1. Consider the market for electricity. Suppose demand (in megawatt hours) is given by Q = 50 P and that the marginal private cost of generating electricity is $10 per megawatt hour (P is in the same units). Suppose further that smoke is generated in the production of electricity in direct proportion to the amount of electricity gener- ated. The health damage from the smoke is $15 per megawatt hour generated. b. C. Suppose the electricity is produced by competitive producers. What price will be charged, and how much electricity will be produced? How would your answer in part a change if electricity were produced by an unregulated monopolist? In parts (a) and (b), what is the consumer surplus from the electricity generation? What is the net surplus, taking into account the pollution damage?

1. Consider the market for electricity. Suppose demand (in megawatt hours) is given by Q = 50 P and that the marginal private cost of generating electricity is $10 per megawatt hour (P is in the same units). Suppose further that smoke is generated in the production of electricity in direct proportion to the amount of electricity gener- ated. The health damage from the smoke is $15 per megawatt hour generated. b. C. Suppose the electricity is produced by competitive producers. What price will be charged, and how much electricity will be produced? How would your answer in part a change if electricity were produced by an unregulated monopolist? In parts (a) and (b), what is the consumer surplus from the electricity generation? What is the net surplus, taking into account the pollution damage?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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