tehsuan224
New Member
- Joined
- Apr 20, 2010
- Messages
- 1
- Gender
- Male
- HSC
- 2013
Residents of a town can get their electric power from two power companies: one employs a hydroelectric
generator and the other, a coal-fired steam generator. The hydro-electric generator can supply
up to 100 units of power per day at a constant marginal cost of 1 cent per unit to the producer and
zero marginal external cost. The steam generator can supply any additional power that is needed at a
constant marginal cost of 10 cents per unit to the producer with a positive marginal external cost.
When electricity costs 10 cents per unit, residents of the town demand 200 units per day.
a. Draw the producers’ marginal cost curve of electric power production and the demand for
electric power for the town.
b. Is the quantity of 200 unit per day of electric power consumption efficient?
c. After the introduction of a Pigouvian tax of 5 cents per unit, what is the marginal cost to the
power companies of the town?
d. What would be the marginal cost curve of electric power production after the introduction of
the Pigouvian tax. Can we determine what price will be charged for electric power?
generator and the other, a coal-fired steam generator. The hydro-electric generator can supply
up to 100 units of power per day at a constant marginal cost of 1 cent per unit to the producer and
zero marginal external cost. The steam generator can supply any additional power that is needed at a
constant marginal cost of 10 cents per unit to the producer with a positive marginal external cost.
When electricity costs 10 cents per unit, residents of the town demand 200 units per day.
a. Draw the producers’ marginal cost curve of electric power production and the demand for
electric power for the town.
b. Is the quantity of 200 unit per day of electric power consumption efficient?
c. After the introduction of a Pigouvian tax of 5 cents per unit, what is the marginal cost to the
power companies of the town?
d. What would be the marginal cost curve of electric power production after the introduction of
the Pigouvian tax. Can we determine what price will be charged for electric power?