A Municipal Water Utility Employs Quasi-Fixed Capital Inputs-The Water Treatment

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 . 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