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Texarkana Electric Company burns coal to heat the water thatdrives its electricity-producing turbines. The table...

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Economics

Texarkana Electric Company burns coal to heat the water thatdrives its electricity-producing turbines. The table below showsthe marginal benefit of annual electricity consumption and theprivate marginal cost of annual electricity production. MarginalCost and Marginal Benefit \table[[Quantity (millions ofmegawatts),MBprivate ($/million MW),MCprivate ($/million MW),MCexternal ($/million MW),MC social ($/millionMW)],[0.5,$130,$70,$,,$,(3)],[1.0,115,75,80,(3),150,(3)],[1.5,100,80,A.120,,195,(3)],[2.0,85,85,160,(*),240,(3)],[2.5,70,90,200,,285,(3)],[3.0,45,95,240,,335,(3)]]a. What is "private quantity" of electricity Texarkana ElectricCompany will produce each year?

?

million megawatts per year Now assume the production ofelectricity also produces sulfur dioxide (a precursor to acidrain). The external cost of the sulfur dioxide increases by

$40

for each 0.5 million megawatts produced. b. Fill in the externalmarginal cost (

MC_(external )

) and the social marginal cost (

MC_(socia )

) columns in the table above. c. What is the socially optimalamount of electricity for Texarkana to produce if all costs andbenefits are considered?

?

million megawatts per year

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