EBF_200-HW_4_F10-solns

# Ans consumers pay the price you found in e producers

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Unformatted text preview: nt on your graph. ANS: See graph above. If you set MED = 5, you should find: PMC + Permit Costs = PMB when Q/5 + 5 = 50  ­ Q/20, giving you Q = 180 and P = 41. If you set MED = 25, you will find Q/5 + 25 = 50  ­ Q/20 and thus Q = 100 and P = 45. f) How much do consumers pay for electricity with a permit policy in place? Label this price as “price paid by consumers.” How much do producers receive per unit? Label this price as “price received by producers.” ANS: Consumers pay the price you found in (e). Producers receive this price less the price of a permit, which is 41 – 5 = 36 or 45 – 25 = 20, depending on the way you did the problem. g) Calculate each of the following: permit revenue, compliance costs, consumer surplus under the permit policy, and producer surplus under the permit policy. ANS: Permit revenue, in this simple set ­up, is just permit price * optimal quantity = 5*180 = \$900 or 25*100 = \$2500. Compliance costs are permit price * (Qc – Q*)/2, which is equal to \$50 if MED = 5 and \$1250 if MED = 25. CS = 180*(50 ­41)/2 = \$810 (if MED = 5) or 100* (50 ­45)/2 =\$250 (if MED = 25). Last, if MED = 5, PS = 36*180/2 = \$3240 or 20*100/2 = \$1000 if MED =25. h) Break revenue and compliance costs down into the amount paid by producers and the amount paid by producers. Who paid more? ANS: You can...
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## This note was uploaded on 01/15/2013 for the course EBF 200 at Pennsylvania State University, University Park.

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