Texarkana Electric Company burns coal to heat the water that drives its electricity-producing turbines. The table below shows the marginal benefit of annual electricity consumption and the private marginal cost of annual electricity production. Marginal Cost and Marginal Benefit Quantity (millions of megawatts) MBprivate MCprivate MCexternal MCsocial 1.0 $145 $85 $ $ 2.0 130 90 3.0 115 95 4.0 100 100 5.0 85 105 6.0 60 110 Instructions: Enter your answers as a whole number. a. What is the (apparent) optimal amount of electricity for Texarkana Electric Company to produce each year? million megawatts per year
a. Now assume the production of each million megawatts of electricity also produces sulfur dioxide (a precursor to acid rain). The external cost of thesulfur dioxide is $20 per million megawatts of electricity production.
b. Fill in the external marginal cost (MCexternal) and the social marginal cost (MCsocial) columns in the table above
c. What is the socially optimal amount of electricity for Texarkana to produce if all costs and benefits are considered? million megawatts per year
Ans: a. 4 million megawatts per year
b. 
c. 3 million megawatts per year
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