This question is inspired on the recent evolution of electricity markets in Switzerland and the EU. Suppose a market consists of three producers: i. Firm 1 (photovoltaics) has a marginal cost of production od CHF 1 and can produce up to 100 MW/h; ii. Firm 2 (hydroelectric) has a marginal cost od production of CHF 5 and can produce up to 200 MW/H; iii. Firm 3 (gas) has a marginal cost od production of CHF 20 and can produce up to 200 MW/h. For simplicity, assume that there are no fixed costs of production. Consumers are willing to pay a constant amount of 25 CHF for each additional MW/h up to 500 MW/h. a) Draw a graph of supply and demand for this market. b) Calculate the price in the market and the profits of each company.
This question is inspired on the recent evolution of electricity markets in Switzerland and the EU.
Suppose a market consists of three producers:
i. Firm 1 (photovoltaics) has a marginal cost of production od CHF 1 and can produce up to 100 MW/h;
ii. Firm 2 (hydroelectric) has a marginal cost od production of CHF 5 and can produce up to 200 MW/H;
iii. Firm 3 (gas) has a marginal cost od production of CHF 20 and can produce up to 200 MW/h.
For simplicity, assume that there are no fixed costs of production.
Consumers are willing to pay a constant amount of 25 CHF for each additional MW/h up to 500 MW/h.
a) Draw a graph of
b) Calculate the price in the market and the profits of each company.
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