Consider the market for electricity

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Reference no: EM131000963

Consider the market for electricity. Suppose demand (in megawatt hours) is given by Q = 50 − P and that the marginal private cost of generating electricity is $10 per megawatt hour (P is in the same units). Suppose further that smoke is generated in the production of electricity in direct proportion to the amount of electricity generated. The health damage from the smoke is $15 per megawatt hour generated. (What is meant here is that MC and MD are 10 and 15 repectively, not 10Q and 15Q.) (a) Suppose the electricity is produced by an unregulated monopolist. What price will be charged, and how much electricity will be produced? (b) In part (a), what is the consumer surplus from the electricity generation? What is the total surplus, taking into account the pollution damage?

Reference no: EM131000963

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