A city of Hayward has a water reservoir that agricultural user (A) and recreational user (B) have access rights to. Both users A and B want to consume water from the reservoir. The total supply of water there is limited to 18 due to a dry weather this year. User A has inverse demand function: P = 30-Q. User A has marginal cost of pumping water from the reservoir: MC=2. For user B, her inverse demand function is P =20-Q. User B has marginal cost of pumping water (so that she can grow fish in her water garden): MC=2. Efficient allocations are QA- and user B's net benefit is and QB= When the water allocation is efficient, user A's net benefit is . Thus, economic surplus is

A city of Hayward has a water reservoir that agricultural user (A) and recreational user (B) have access rights to. Both users A and B want to consume water from the reservoir. The total supply of water there is limited to 18 due to a dry weather this year. User A has inverse demand function: P = 30-Q. User A has marginal cost of pumping water from the reservoir: MC=2. For user B, her inverse demand function is P =20-Q. User B has marginal cost of pumping water (so that she can grow fish in her water garden): MC=2. Efficient allocations are QA- and user B's net benefit is and QB= When the water allocation is efficient, user A's net benefit is . Thus, economic surplus is

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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