Question

3. Suppose that it costs a public water supply company a total of TC = 55+0.04W2 to supply W gallons of water per day to identical households in its service area. Average total cost is thus ATC = 55/W+0.04W, marginal cost is MC = 0.08W, and average variable cost is 0.04W. Inverse demand for water is P = 10.4-0.05W, where P is in dollars per thousand gallons. a) Graph average total cost, average variable cost, marginal cost, and inverse demand. b) Use the graph to find the efficient level of water usage and associated water price. (Adjust the scale of your axes as needed.) c) Use the graph to find the level of water usage and associated water price under average (total) cost pricing. d) How much greater or smaller is water use in part (c) than part (b)? Suppose that you are devising an increasing block price schedule for this utility that will get households in the utility's service area to use the efficient among of water in part (b). Assume also that you will use blocks of 60 gallons per day, designed so that the average price facing each household equals the average total cost of supplying the efficient level of water usage. What should be the price assigned to each block of water use?

Answer 1

Note: As per HOMEWORKLIB RULES, the first four sub-part are answered. Kindly post the rest of the question in a separate post.

(a)The graph for the average total cost (blue), average variable cost (black), marginal cost (green) and the inverse demand function (purple) is as follows:

The left hand of the image shows the equation mentioned in the question.