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IWRM, Assignment#2
IWRM, Assignment#2
The utility agency (water supplier for SmallTown) bears total costs while supplying water, following a
supply equation as follows:
TC(Q) = 3. 10-6 Q3 + 6 Q
(note that same units and calculations bases still apply as in previous questions)
Q #4: Establish the marginal cost function. Establish the net revenue of the water utility under Pc
and current demand. Calculate the market-clearing price of water (also called equilibrium price
Pe). Compare Pe and Pc. Comment.
Under financial difficulties, the utility decides to change the price from Pc to Pe.
Q #5. How would a change from Pc to Pe alter demand Qd, CS?
Q#6: Calculate the net benefit of supplier (or producer surplus PS) and CS under the two prices
scenarios (draw some graph to illustrate).
Q#7: What is the total economic value (CS + PS) of domestic water as supplied and used in
SmallTown, under the two scenarios? Discuss.