Question 10 Consider a market for electricity, where there is one electricity providor. Suppose demand (in...

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Question 10 Consider a market for electricity, where there is one electricity providor. Suppose demand (in megawatt hours) is given by Q = 50 - P and that the marginal private cost of generating electricity is $10 per megawatt hour (P is in the same units). Suppose further that smoke is generated in the production of electricity in direct proportion to the amount of electricity generated. The health damage from the smoke is $15 per megawatt hour generated. a) On a graph, draw the demand and marginal revenue for this monopolist. Add in the marginal private cost of producing electricity, and the marginal social cost that incorporates the damage from pollution. b) If the monopolist was allowed to produce and set prices with no regulation, what would be the quantity and price? Label this quantity in the figure in a. c) What is the efficient quantity of electricity, taking into account pollution? Label this quantity in the figure in a. d) What would the output and price be if regulators imposed a Pigovian tax? Label this quantity in the figure in a. e) What is the change in deadweight loss when the regulator imposes the Pigovian tax? Make sure to take pollution into account when calculating the deadweight loss. Question 10 Consider a market for electricity, where there is one electricity providor. Suppose demand (in megawatt hours) is given by Q = 50 - P and that the marginal private cost of generating electricity is $10 per megawatt hour (P is in the same units). Suppose further that smoke is generated in the production of electricity in direct proportion to the amount of electricity generated. The health damage from the smoke is $15 per megawatt hour generated. a) On a graph, draw the demand and marginal revenue for this monopolist. Add in the marginal private cost of producing electricity, and the marginal social cost that incorporates the damage from pollution. b) If the monopolist was allowed to produce and set prices with no regulation, what would be the quantity and price? Label this quantity in the figure in a. c) What is the efficient quantity of electricity, taking into account pollution? Label this quantity in the figure in a. d) What would the output and price be if regulators imposed a Pigovian tax? Label this quantity in the figure in a. e) What is the change in deadweight loss when the regulator imposes the Pigovian tax? Make sure to take pollution into account when calculating the deadweight loss.

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a Here is a graph illustrating the demand curve marginal revenue marginal private cost and marginal social cost Price P MR MSC Efficient Quantity Qe M... View the full answer