Question: 3. Consider a very simple two-node model in which natural gas is produced in region A and is transported by pipeline to region B. The

3. Consider a very simple "two-node" model in which natural gas is produced in region A and is transported by pipeline to region B. The price of natural gas in Region B is $6 per thousand cubic feet (Mcf) and the price of transportation service from Region A to Region B is $1/Mcf.

a. If the market for producing gas in region A is perfectly competitive and there is a perfectly elastic supply of transportation service what will be the equilibrium price of natural gas in Region A?

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