A natural spring runs under land owned by ten people. Each person has the right to sink a well and can take water from the spring at a constant marginal cost of $5 a litre. The table sets out the external cost and the social benefit from water. Quantity of water (litres per day) 10 20 30 40 50 60 70 Marginal external cost 1 2 3 4 5 6 7 Marginal social benefit (dollars per litre) 10 9 8 7 6 5 4 Draw the marginal cost curve. Label it. Draw the marginal social benefit curve. Label it. Draw the marginal social cost curve. Label it. The government sets a quota on the total amount of water such that the spring is used efficiently. Draw a line to show this quota. Label it.

A natural spring runs under land owned by ten people. Each person has the right to sink a well and can take water from the spring at a constant marginal cost of $5 a litre. The table sets out the external cost and the social benefit from water. Quantity of water (litres per day) 10 20 30 40 50 60 70 Marginal external cost 1 2 3 4 5 6 7 Marginal social benefit (dollars per litre) 10 9 8 7 6 5 4 Draw the marginal cost curve. Label it. Draw the marginal social benefit curve. Label it. Draw the marginal social cost curve. Label it. The government sets a quota on the total amount of water such that the spring is used efficiently. Draw a line to show this quota. Label it.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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