Consider the example presented in Figure 13-3. Imagine that the current price of waste disposal is $0.025/lb and the average waste disposal is 2.40 lb/p/d. As noted in the diagram, when the price was previously $0.01/lb, the average waste disposal was 2.52 lb/p/d. Assume that the marginal social cost of waste disposal is $0.06/lb, that marginal social costs are constant with respect to quantity, and that the town has a population of 100,000.
a. Fitting a linear demand curve to the two observed points, calculate the annual net benefits of raising the price of waste disposal to $0.05/lb.
b. Fitting a constant-elasticity demand curve to the observed points, calculate the annual net benefits of raising the price of waste disposal to $0.05/lb.