The inverse demand function for water (w) among urban users is given by D(w) = 10 - 2w, and the inverse demand function for water among rural users is given by D(w) = 6 - w. The total amount of water available is W = 5 .
a. What is the efficient allocation of water to the two groups of users: urban and rural?
b. What is the efficient price for water? Why?