Consider the market for electricity. Suppose demand (in megawatt hours) is given by Q=50-p and that the marginal private cost of generating electricity is $10 per megawatt hour (p is the same units). Suppose further that smoke is generated in the production of electricity in direct proportion to the amount of electricity generated. The health damage from the smoke is $15 per megawatt hour generated.
A: Suppose the electricity is produced by competitive producers. What price will be charged and how much electricity will be produced?
B: How would your answer change if it was produced by an unregulated monopolist?
C: For each previous answer, what is the consumer surplus from the electricity generated? What is the net surplus, taking into account pollution damage?