Snidely Whiplash owns all the houses in the Yukon Territory, for which he charges the highest possible rent. He also owns the only electric company, which pollutes the territory's air. There is no way to negotiate with Snidely. It is costless for residents to leave the territory. The following graph shows the market for electricity:

a. Snidely currently charges a monopoly price for electricity, but he is thinking of lowering the price to a competitive level. If he does so, how much does the price of housing change? Explain why.
b. Is it wise for Snidely to lower the price of electricity?
c. What is the combined deadweight loss due to Snidely's monopoly power and the pollution from thefactory?

Transcribed Image Text:

Price MCocial MCpriate Quality (kilowatt-hours) MR