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The SolarFarm powerplant has both fixed and variable costs. As the plant expands production, it first has constant returns to scale, and then diminishing returns to scale. (a) Draw a large graph showing (only) the firm's marginal costs and average total costs in a suitably labelled graph. Show on the graph where the firm's technology changes from constant-returns to diminishing-returns. SolarFarm is a monopolist with a downward sloping demand curve. Add to your graph a demand and marginal revenue curve. Assume that the demand curve intercepts the average cost curve at its minimum point. Show the quantity and price of electricity in this market. (b) The government connects SolarFarm to a nearby town that is currently without electricity. Show in a new, large, graph how the market price and quantity of electricity sold change as a result. (c) Return to the situation in part (a) of this question. The government discovers a new technology that would allow SolarFarm to never experience diminishing returns to scale in production. Should the government release this technology to the firm? Explain using a graph.

The SolarFarm powerplant has both fixed and variable costs. As the plant expands production, it first has constant returns to scale, and then diminishing returns to scale. (a) Draw a large graph showing (only) the firm's marginal costs and average total costs in a suitably labelled graph. Show on the graph where the firm's technology changes from constant-returns to diminishing-returns. SolarFarm is a monopolist with a downward sloping demand curve. Add to your graph a demand and marginal revenue curve. Assume that the demand curve intercepts the average cost curve at its minimum point. Show the quantity and price of electricity in this market. (b) The government connects SolarFarm to a nearby town that is currently without electricity. Show in a new, large, graph how the market price and quantity of electricity sold change as a result. (c) Return to the situation in part (a) of this question. The government discovers a new technology that would allow SolarFarm to never experience diminishing returns to scale in production. Should the government release this technology to the firm? Explain using a graph.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Dont need to  use specific figures for graph, just a sketch

The SolarFarm powerplant has both fixed and variable costs. As the plant expands production, it first has constant returns to scale, and then diminishing returns to scale. (a) Draw a large graph showing (only) the firm's marginal costs and average total costs in a suitably labelled graph. Show on the graph where the firm's technology changes from constant-returns to diminishing-returns. SolarFarm is a monopolist with a downward sloping demand curve. Add to your graph a demand and marginal revenue curve. Assume that the demand curve intercepts the average cost curve at its minimum point. Show the quantity and price of electricity in this market. (b) The government connects SolarFarm to a nearby town that is currently without electricity. Show in a new, large, graph how the market price and quantity of electricity sold change as a result. (c) Return to the situation in part (a) of this question. The government discovers a new technology that would allow SolarFarm to never experience diminishing returns to scale in production. Should the government release this technology to the firm? Explain using a graph.
Transcribed Image Text:The SolarFarm powerplant has both fixed and variable costs. As the plant expands production, it first has constant returns to scale, and then diminishing returns to scale. (a) Draw a large graph showing (only) the firm's marginal costs and average total costs in a suitably labelled graph. Show on the graph where the firm's technology changes from constant-returns to diminishing-returns. SolarFarm is a monopolist with a downward sloping demand curve. Add to your graph a demand and marginal revenue curve. Assume that the demand curve intercepts the average cost curve at its minimum point. Show the quantity and price of electricity in this market. (b) The government connects SolarFarm to a nearby town that is currently without electricity. Show in a new, large, graph how the market price and quantity of electricity sold change as a result. (c) Return to the situation in part (a) of this question. The government discovers a new technology that would allow SolarFarm to never experience diminishing returns to scale in production. Should the government release this technology to the firm? Explain using a graph.
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