Ans consumers pay the price you found in e producers

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

This note was uploaded on 01/15/2013 for the course EBF 200 at Pennsylvania State University, University Park.

Ask a homework question - tutors are online