2.4 Water is produced and sold by the government. Demand for water is represented by the linear function Q=50-2P. The total cost function for water production is also a linear function: TC(Q)= 100+ 100. You will also need to work out both the average cost of production, denoted by AC(Q), equal to the total cost of producing a quantity of output divided by that quantity of output, TC(Q)/Q, and the marginal cost of production, denoted by MC(Q), which is the additional cost incurred to produce one more unit. a. What fee should the government charge per unit of water in order to reach the efficient allocation? b. How much should it charge if it wishes to maximize profit from the sale of water? C. What is the value of the efficiency loss that results from charging the price in part b rather than the price determined in part a? 2.4Water is produced and sold by the government. Demand for water is represented by thelinear function Q = 50 - 2P. The total cost function for water production is also a linearfunction: TC(Q) = 100 + 10Q. You will also need to work out both the average cost ofproduction, denoted by AC(Q), equal to the total cost of producing a quantity of outputdivided by that quantity of output, TC(Q)/Q, and the marginal cost of production, denotedby MC(Q), which is the additional cost incurred to produce one more unit.What fee should the government charge per unit of water in order to reach the efficientallocation?a.b. How much should it charge if it wishes to maximize profit from the sale of water?c.What is the value of the efficiency loss that results from charging the price in part brather than the price determined in part a?Practice Problem

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2.4

Water is produced and sold by the government. Demand for water is represented by the

linear function Q=50-2P. The total cost function for water production is also a linear function: TC(Q)= 100+ 100. You will also need to work out both the average cost of production, denoted by AC(Q), equal to the total cost of producing a quantity of output divided by that quantity of output, TC(Q)/Q, and the marginal cost of production, denoted by MC(Q), which is the additional cost incurred to produce one more unit.

a. What fee should the government charge per unit of water in order to reach the efficient allocation?

b. How much should it charge if it wishes to maximize profit from the sale of water?

C. What is the value of the efficiency loss that results from charging the price in part b rather than the price determined in part a?

2.4
Water is produced and sold by the government. Demand for water is represented by the
linear function Q = 50 - 2P. The total cost function for water production is also a linear
function: TC(Q) = 100 + 10Q. You will also need to work out both the average cost of
production, denoted by AC(Q), equal to the total cost of producing a quantity of output
divided by that quantity of output, TC(Q)/Q, and the marginal cost of production, denoted
by MC(Q), which is the additional cost incurred to produce one more unit.
What fee should the government charge per unit of water in order to reach the efficient
allocation?
a.
b. How much should it charge if it wishes to maximize profit from the sale of water?
c.
What is the value of the efficiency loss that results from charging the price in part b
rather than the price determined in part a?
Practice Problem

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