An urban water company (U) and a nearby agricultural water district (A) are active in a...

   

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An urban water company (U) and a nearby agricultural water district (A) are active in a water market. The marginal net benefit of water for the water company is MNBU(XU)=1000-0.5.xu, where xu is measured in acre-feet of water per year and the benefit of water use is measured in dollars. The marginal net benefit of water use by the agricultural district is MNB A(XA)=400-0.2x4, with x measured in acre-feet per year. In a particular year, there are 3,000 acre-feet of water available for the two users and the urban water company has rights to 2,000 acre feet. 1. Is the water constraint binding? Be sure to show all relevant work. 2. If trading occurs, how much water will each user use and what will be the equilibrium trading price? Assume that the two entities act as price takers of the equilibrium price. Round your answers to the nearest whole number. Be sure to show your work. 3. represent your answer from 6.2 using the two-way graph below. Be sure to label the optimal allocation, equilibrium price, and all curves and axis intercepts. $ $ ←XA What are each user's total rents after trading occurs? INT 4. Xu → An urban water company (U) and a nearby agricultural water district (A) are active in a water market. The marginal net benefit of water for the water company is MNBU(XU)=1000-0.5.xu, where xu is measured in acre-feet of water per year and the benefit of water use is measured in dollars. The marginal net benefit of water use by the agricultural district is MNB A(XA)=400-0.2x4, with x measured in acre-feet per year. In a particular year, there are 3,000 acre-feet of water available for the two users and the urban water company has rights to 2,000 acre feet. 1. Is the water constraint binding? Be sure to show all relevant work. 2. If trading occurs, how much water will each user use and what will be the equilibrium trading price? Assume that the two entities act as price takers of the equilibrium price. Round your answers to the nearest whole number. Be sure to show your work. 3. represent your answer from 6.2 using the two-way graph below. Be sure to label the optimal allocation, equilibrium price, and all curves and axis intercepts. $ $ ←XA What are each user's total rents after trading occurs? INT 4. Xu →

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61 Yes the constraint will be binding Both parties want to consume water until a ... View the full answer