A Municipal Water Utility Employs Quasi-Fixed Capital Inputs-The Water Treatment $$P = 24 - 0.0004 Q _ { d }$$

question 9

Multiple Choice

A municipal water utility employs quasi-fixed capital inputs-the water treatment plant and distribution lines to homes-to supply water to 20,000 households in the community it serves.The figure below shows the cost structure of this utility for various levels of water service.Quantity of water consumption is measured in 1,000-gallon units per month.AQFC is the average quasi-fixed cost curve,and LAC is long-run average cost.Long-run marginal cost,LMC,is constant and equal to $4 per 1,000-gallon unit.The inverse demand equation is $$P = 24 - 0.0004 Q _ { d }$$ . Regulators at the Public Service Commission are unlikely to choose the price in the previous question because

• A)the water utility company will lose money at that price.
• B)the utility company will require a subsidy to continue operation in the long run.
• C)government failure is a common problem at Public Service Commissions.
• D)both a and b
• E)all of the above

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Definitions:

Adaptive Control

A process or mechanism that allows systems to adjust their functioning or behavior in response to changes in the environment or internal state.

Predictive Efficiency

The degree to which a test or model accurately forecasts outcomes or behaviors in various contexts or situations.

High-Risk

Refers to a greater likelihood of experiencing negative outcomes or dangers.

Predictive Efficiency

The ability of a model or test to accurately forecast the likelihood of specific outcomes based on known data or characteristics.