Determine the demand functions, Econometrics

Assignment Help:

The town of Dusty View, Saskatchewan has only two residents - Justin and Sarah - and has a water supply shortage in the summer. The municipal water utility charges a break even price of $100 per unit of water but the system capacity is limited to 500 units. Justin and Sarah's marginal utility functions for water in the summer are as follows:

            MU(Justin) = 1600 - 4W

            MU(Sarah) = 1200 - 4W

a)  Determine the demand functions for Justin and Sarah and the total demand for water in Dusty View. Show that there will be a summer water shortage.

b)  Suppose the town decides to increase the price of water until there is no excess demand. Calculate the new price and the gains from trade (individual consumer surpluses and town profit) resulting from this decision.

c)  Now suppose the town decides against using price to ration water and instead allocates the water fairly between Sarah and Justin - 250 units each - and reverts to charging $100 per unit. Assume resale between Sarah and Justin is impossible. Calculate the gains from trade in this case. Why is it better/worse than the solution in b)?

d) Now suppose resale is possible under the 250 unit per person allocation plan. What will be the final result? How does it compare with the result in b)? 

 


Related Discussions:- Determine the demand functions

Cournot duopoly model, i) Briefly distinguish between the Cournot duopoly m...

i) Briefly distinguish between the Cournot duopoly model and that of Stackelberg.     ii) Suppose the  inverse  market demand curve for  a telecommunications equipment is P = 10

Marginal revenue function, A firm has the certain total revenue (TR) functi...

A firm has the certain total revenue (TR) function:      TR=(4Q+2) e 4Q where Q  is Quantity      Find the firm's marginal revenue function.

Identify the parameters of this model, Consider a Simple Linear Regression ...

Consider a Simple Linear Regression Model (SLRM) of the form y= a1+a2X+e where e ~  N(0,σ 2 )(Use the assumptions outlined in our class and available for review in the lecture note

Level of interest rate, You have won a contest and are allowed to choose be...

You have won a contest and are allowed to choose between two prizes. One option is to receive $200 now and another $200 a year from now. The second option is $150 now and $255 a

Dropout equation - unemployment variable, Consider the following equations ...

Consider the following equations designed to estimate  a school's test scores (Test) and the school's dropout rate (Drop). Test i = B 0 + B 1 *Parent Ed i + B 2 *school quali

Concept of limit pricing theory, what meaning of limit pricing theory and i...

what meaning of limit pricing theory and its importance in industrial economics?

Elasticity, compare the price elasticity of demand on two parallel demand c...

compare the price elasticity of demand on two parallel demand curves for a given price and for a given quantity

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd