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Texarkana Electric Company burns coal to heat the water that drives its electricity-producing turbines. The table below shows the marginal benefit of annual electricity consumption and the private marginal cost of annual electricity production.

Texarkana Electric Company burns coal to heat the water that drives its electricity-producing turbines. The table below shows the marginal benefit of annual electricity consumption and the private marginal cost of annual electricity production.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Texarkana Electric Company burns coal to heat the water that drives its electricity-producing turbines. The table below shows the marginal benefit of annual electricity consumption and the private marginal cost of annual electricity production. Marginal Cost and Marginal Benefit Quantity (millions of megawatts) 1.0 2.0 3.0 4.0 5.0 6.0 MB private MC private MC external MC social $ $ $145 $85 130 115 100 85 60 90 95 100 105 110 Instructions: Enter your answers as a whole number. a. What is "private quantity" of electricity Texarkana Electric Company will produce each year? million megawatts per year Now assume the production of each million megawatts of electricity also produces sulfur dioxide (a precursor to acid rain). The external cost of the sulfur dioxide is $20 per million megawatts of electricity production. b. Fill in the external marginal cost (MCexternal) and the social marginal cost (MC social columns in the table above. c. What is the socially optimal amount of electricity for Texarkana to produce if all costs and benefits are considered? million megawatts per year
Transcribed Image Text:Texarkana Electric Company burns coal to heat the water that drives its electricity-producing turbines. The table below shows the marginal benefit of annual electricity consumption and the private marginal cost of annual electricity production. Marginal Cost and Marginal Benefit Quantity (millions of megawatts) 1.0 2.0 3.0 4.0 5.0 6.0 MB private MC private MC external MC social $ $ $145 $85 130 115 100 85 60 90 95 100 105 110 Instructions: Enter your answers as a whole number. a. What is "private quantity" of electricity Texarkana Electric Company will produce each year? million megawatts per year Now assume the production of each million megawatts of electricity also produces sulfur dioxide (a precursor to acid rain). The external cost of the sulfur dioxide is $20 per million megawatts of electricity production. b. Fill in the external marginal cost (MCexternal) and the social marginal cost (MC social columns in the table above. c. What is the socially optimal amount of electricity for Texarkana to produce if all costs and benefits are considered? million megawatts per year
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