Which pricing scheme maximizes total welfare

Assignment Help Business Economics

Reference no: EM131377234

A public water utility is comparing two separate pricing schemes: (i) a two-tiered pricing scheme where the first 5,000 gallons cost $20 and all subsequent gallons cost $10 or (ii) a single price of $15 per gallon. There are two types of demand for water from the utility Type 1: p = 30 − 3q Type 2: p = 25 − 5 4 q where q is thousands of gallons. The marginal cost of providing a gallon of water is $10.

(a) Under scheme (i), how much water is purchased by each demand group? What is the total surplus?

(b) Under scheme (ii), how much water is purchased by each demand group? What is the total surplus?

Reference no: EM131377234

Questions Cloud

Establish the marginal net benefit functions : You are a benevolent water manager who is tasked with assigning water to three different types of users: 1) Wheat farmers, 2) Town of Moscow, ID, and 3) Town of Pullman After extensive research from the econ department at WSU, you have been able to e..

Create lot of interest-rate risk for bank : Banks often try to sell off their mortgage loans (usually 30 years in length) as soon as possible because of the interest-rate risk. Explain how a mortgage loan could create a lot of interest-rate risk for a bank.

Find the economically efficient price and quantity : A water supplier faces demand characterized by inverse demand function p = 100 − 2q. The supplier has somewhat unusual cost structure that results in a marginal cost function of the form MC(q) = 44 − (3/5)(q). Show how you find the economically effic..

Using the t-accounts of the first national bank : Using the T-accounts of the First National Bank and the Second National Bank, describe what happens when George Clinton writes a $50 check on his account at First National to pay his friend Bernie Worrell, who in turn deposits the check into his acco..

Which pricing scheme maximizes total welfare : A public water utility is comparing two separate pricing schemes: (i) a two-tiered pricing scheme where the first 5,000 gallons cost $20 and all subsequent gallons cost $10 or (ii) a single price of $15 per gallon. Under scheme (i), how much water is..

Determine the current equilibrium price and quantity : A water utility for a growing city is considering expanding their capacity by investing in a larger system of wells. Their long-run marginal cost of water provision is characterized by the function MC(q) = 5 + 2 3 q (q is in thousands of gallons). De..

Contract to sell piece of real estate : Matthew has a contract to sell a piece of real estate to Betty for $35,000. Matthew breaches the contract and decides to keep the property even though the market price is only $31,000. Betty can recover:

Specific performance because painting is mechanical act : Patrick hires Bryan, a well–known artist, to paint a mural on the wall of Patrick’s restaurant. After signing the contract, Bryan calls Patrick and tells him that he is too busy to do it. Patrick wants one of Bryan’s murals on the wall, so he sues fo..

How many units of labor will the firm use : You run a small business that uses both capital and labor to produce your output. The machinery (capital) has a marginal cost equal to $25 per hour and a marginal product cost equal to 50 units per hour. How many units of labor will the firm use?

User Account

All Pages