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

Econometric model for economic services, what model should i use for econom...

what model should i use for economic services and how to run spss for the same?

Baumol''s theory, Profit maximization is theoretically the most sound but p...

Profit maximization is theoretically the most sound but practically unattainable objective of business firms. In the light of this statement critically appraise the Baumol’s sales

Explain structural model and a recursive model, Problem: a) Using a fi...

Problem: a) Using a financial or economics theory, determine a simultaneous structural model and a recursive model, explaining each variable used in the models. b) Using

Firm''s profit function, A  firm manufactures  and  sells  a  product  that...

A  firm manufactures  and  sells  a  product  that  has  the  following  demand function:       Q = 180 - 4P   where P  is price, Q  is quantity.  It also  faces  the  following

Hetroscedasticity, hypothetical data on consumption expenditure ($) and inc...

hypothetical data on consumption expenditure ($) and income ($) is given in the table x Y 80 55 100 65 85 70 110 80 120 79 115 84

Stationary point, Determine the  four  stationary  points  of  the  functi...

Determine the  four  stationary  points  of  the  function  Z= 2x 3 +y 3 -18x -12y +50 according to whether they define a maximum, minimum, or saddle point.

Total differential of the tr , A  firm's  total  revenue (TR)  is  prov...

A  firm's  total  revenue (TR)  is  provided by  pq, where  p  is  price  and  q  is  quantity sold. Assume the  firm  is  initially  selling  1000  units  of  its  product at  a

The Myth of Public Goods by Mark Davis (2010); the J, Ask questia) Summariz...

Ask questia) Summarize the basic tenets of the arguments in thiscase b) Do you agree with main tenets of the arguments in the case? Why? Justify your answer with detailed explanati

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