(Answered) Consider figure 133 in the book imagine that the current

Management Studies

Consider Figure 13.3 in the book. Imagine that the current price of waste disposal is $0.025/lb andthe average waste disposal is 2.40lb/p/d. As noted in the diagram, when the price was previously$0.01/lb, the average waste disposal was 2.52 lb/p/d. Assume that the marginal social cost of wastedisposal is $0.06/lb, that marginal social costs are constant with respect to quantity, and that thetown has a population of 100,000.

(a) Fitting a linear demand curve to the two observer points, calculate the annual netbenefits of raising the price of waste disposal to $0.05/lb.

(b) Fitting a constant elasticity demand curve to the observed points, calculate the annualnet benefits of raising the price of waste disposal to $0.05/lb.

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