For Questions Refer to the Following Information:
a $$P = 24 - 0.0004 Q _ { d }$$

question 2

Multiple Choice

For Questions refer to the following information:
A municipal water utility employs quasi-fixed capital inputs-are 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 $$P = 24 - 0.0004 Q _ { d }$$ .
-If the Public Service Commission undertakes second-best pricing, the price and output of water are __________ and _________, respectively.

• A) $2.00; 55,000
• B) $9.00; 50,000
• C) $2.50; 27,500
• D) $9.50; 55,000
• E) none of the above

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