QUESTION 6 A village has a water reservoir that individuals A and 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 14 due to a dry weather this year. User A has inverse demand function: P = 20-Q. User A has marginal cost of pumping water from the reservoir (so that he can irrigate his farm): MC=4. For user B, her inverse demand function is P =10-0.5Q. 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 QB= . When the water allocation is efficient, user A's net benefit is and user B's net benefit is Thus, the sum of net benefits (or economic surplus) is

QUESTION 6 A village has a water reservoir that individuals A and 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 14 due to a dry weather this year. User A has inverse demand function: P = 20-Q. User A has marginal cost of pumping water from the reservoir (so that he can irrigate his farm): MC=4. For user B, her inverse demand function is P =10-0.5Q. 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 QB= . When the water allocation is efficient, user A's net benefit is and user B's net benefit is Thus, the sum of net benefits (or 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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