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Water is produced and sold by the government. Demand for water is represented by the linear func-tion Q=50-2P. The total cost function for water production is also a linear function: TC(Q) = 100 + 10Q.

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1. Water is produced and sold by the government. Demand for water is represented by the linear func-tion Q=50-2P. The total cost function for water production is also a linear function: TC(Q) = 100 + 10Q.;a. Show and explain how much the government should charge per unit of water to reach efficient allocation?;b. Show and explain how much the government should charge if it wishes to maximize profit from the sale of water? What are profits?;c. What is the value of the efficiency loss that results from charging the profit maximizing price in part ?b? rather than the price determined in part ?a?.

 

Paper#15801 | Written in 18-Jul-2015

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