The demand for electricity in the Lake Woebegon region is Qd(p) = 100−10p. Quantity is measured in GWh per year and price in monetary units (MU) per GWh. The consumer price of electricity consists of the price of electricity, which can be bought in the competitive electricity market at 2 MU/GWh, and the transmission price. The transmission of electricity from sellers to buyers is provided by the PowerGrid Corporation. The annualized cost of maintaining a power grid with a transmission capacity of k GWh is c(k) = 30 + k MU. What is the transmission capacity, consumer price of electricity, yearly consumer surplus, PowerGrid’s profit, and total surplus, in each of the following cases? (a) PowerGrid Corp sets the price of transmission to maximize profits. (b) PowerGrid Corp sets the price of transmission to maximize total welfare, subject to the constraint that it cannot make a loss. (c) The fixed costs of maintaining transmission capacity increase a little bit. What kind of impact does this have on the economically efficient amount of transmission capacity, and on the capacities chosen in cases 4a and 4b?
The demand for electricity in the Lake Woebegon region is Qd(p) = 100−10p. Quantity is measured in GWh per year and
What is the transmission capacity, consumer price of electricity, yearly
(a) PowerGrid Corp sets the price of transmission to maximize profits.
(b) PowerGrid Corp sets the price of transmission to maximize total welfare, subject to the constraint that it cannot make a loss.
(c) The fixed costs of maintaining transmission capacity increase a little bit. What kind of impact does this have on the economically efficient amount of transmission capacity, and on the capacities chosen in cases 4a and 4b?
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