Consider a wholesale electricity market with two types of generators: coal plants and natural gas plants. There are 10 generators for each fuel type. Each generator has a capacity of 1,000 MW. Marginal costs vary across generation types: $10 per MWh for coal and $20 per MWh for natural gas. During peak hours, demand is given by Q = 30,000 – 100P (measured in MWh). During semi- peak hours, demand is given by Q = 22,000 – 100P. During off-peak hours, demand is given by Q = 20,000 – 100P. Assume that a day consists of one off-peak hour and either a semi-peak or a peak hour (so a day contains two hours only!). Probabilities of semi-peak vs. peak hours are 50%- 50%. For now, assume that the market is competitive. Calculate the peak, the semi-peak, and the off-peak prices of electricity. What are the expected daily profits for each plant?
Consider a wholesale electricity market with two types of generators: coal plants and natural gas plants. There are 10 generators for each fuel type. Each generator has a capacity of 1,000 MW. Marginal costs vary across generation types: $10 per MWh for coal and $20 per MWh for natural gas. During peak hours, demand is given by Q = 30,000 – 100P (measured in MWh). During semi- peak hours, demand is given by Q = 22,000 – 100P. During off-peak hours, demand is given by Q = 20,000 – 100P. Assume that a day consists of one off-peak hour and either a semi-peak or a peak hour (so a day contains two hours only!). Probabilities of semi-peak vs. peak hours are 50%- 50%. For now, assume that the market is competitive. Calculate the peak, the semi-peak, and the off-peak prices of electricity. What are the expected daily profits for each plant?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Consider a wholesale electricity market with
two types of generators: coal plants and
natural gas plants. There are 10 generators
for each fuel type. Each generator has a
capacity of 1,000 MW. Marginal costs vary
across generation types: $10 per MWh for
coal and $20 per MWh for natural gas.
During peak hours, demand is given by Q =
30,000 – 100P (measured in MWh). During
semi- peak hours, demand is given by Q =
22,000 – 100P. During off-peak hours,
demand is given by Q = 20,000 – 100P.
Assume that a day consists of one off-peak
hour and either a semi-peak or a peak hour
(so a day contains two hours only!).
Probabilities of semi-peak vs. peak hours
are 50%- 50%. For now, assume that the
market is competitive.
Calculate the peak, the semi-peak, and the
off-peak prices of electricity.
What are the expected daily profits for each
plant?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7d414211-1610-4707-84cc-f51c88a6f781%2F109ca498-47fb-4834-8fa7-d72c2db9830b%2Fbhrr8r5_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider a wholesale electricity market with
two types of generators: coal plants and
natural gas plants. There are 10 generators
for each fuel type. Each generator has a
capacity of 1,000 MW. Marginal costs vary
across generation types: $10 per MWh for
coal and $20 per MWh for natural gas.
During peak hours, demand is given by Q =
30,000 – 100P (measured in MWh). During
semi- peak hours, demand is given by Q =
22,000 – 100P. During off-peak hours,
demand is given by Q = 20,000 – 100P.
Assume that a day consists of one off-peak
hour and either a semi-peak or a peak hour
(so a day contains two hours only!).
Probabilities of semi-peak vs. peak hours
are 50%- 50%. For now, assume that the
market is competitive.
Calculate the peak, the semi-peak, and the
off-peak prices of electricity.
What are the expected daily profits for each
plant?
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