Texarkana Electric Company burns coal to heat the water that drives its electricity-producing turbines. The table below shows the marginal benefit of annual electricity consumption and the private marginal cost of annual electricity production. Marginal Cost and Marginal Benefit Quantity (millions of megawatts) MBprivate MCprivate MCexternal MCsocial 1.0 $145 $85 $ $ 2.0 130 90 3.0 115 95 4.0 100 100 5.0 85 105 6.0 60 110 Instructions: Enter your answers as a whole number. a. What is the (apparent) optimal amount of electricity for Texarkana Electric Company to produce each year? million megawatts per year
a. Now assume the production of each million megawatts of electricity also produces sulfur dioxide (a precursor to acid rain). The external cost of thesulfur dioxide is $20 per million megawatts of electricity production.
b. Fill in the external marginal cost (MCexternal) and the social marginal cost (MCsocial) columns in the table above
c. What is the socially optimal amount of electricity for Texarkana to produce if all costs and benefits are considered? million megawatts per year
Ans: a. 4 million megawatts per year
b. 
c. 3 million megawatts per year
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The capture theory of regulation is defined as
A) the use of regulations to assure the efficient use of resources. B) the constant reapplication of regulation on the cable TV industry. C) the use of regulation to assist producers to maximize profits. D) the removal of regulations on business activities. E) regulation that focuses on consumers' interests and ignores producers' interests.
Refer to Table 4-14. The equations above describe the demand and supply for Pauline's Pickled Pomegranates. The equilibrium price and quantity for Pauline's Pickled Pomegranates are $30 and 15 thousand units. What is the value of consumer surplus?
A) $50 thousand B) $112.5 thousand C) $225 thousand D) $337.5 thousand
In an economy with no government or foreign sector, which of the following always holds true, ex-post?
A) Consumption equals investment. B) Velocity equals money demand. C) Saving equals consumption. D) Saving equals investment.
Suppose that a regulated industry experiences an increase in the price of inputs used to produce the good. According to the share-the-gains, share-the-pain theory, we would expect
A) prices to increase by a little immediately and profits to decrease by a lot. B) there will be some increase in price but not immediately. C) no increase in price. D) a quick increase in price maintains profits in the industry.