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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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please help me solve this two problem
Transcribed Image Text:10. Consider the case of instant runoff voting when three or more social choices are
involved. Each voter has one vote and votes for his or her favorite option. The option
with the least votes is eliminated, and the process continues until there are two
choices and the one with the majority wins. Suppose we have five voters and three
societal alternatives (A, B, C). Two of the voters rank the alternatives, from first
choice to last choice, (A,B,C); two of the voters rank them (C,B,A); one voter ranks
them (B,A,C). Show that the instant runoff method violates the independence of
irrelevant alternatives axiom (A6).
Transcribed Image Text: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.
a. 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?
b.
C.
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