Operations Management: Processes and Supply Chains, Student Value Edition Plus MyLab Operations Management with Pearson eText -- Access Card Package (12th Edition)
Operations Management: Processes and Supply Chains, Student Value Edition Plus MyLab Operations Management with Pearson eText -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134855424
Author: Lee J. Krajewski, Manoj K. Malhotra, Larry P. Ritzman
Publisher: PEARSON
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Chapter A, Problem 9P

The Tri-County Generation and Transmission Association is a nonprofit cooperative organization that pro vides electrical service to rural customers. Based on a faulty long-range demand forecast, Tri-County overbuilt its generation and distribution system. Tri-County now has much more capacity than it needs to serve its customers. Fixed costs, mostly debt service on investment in plant and equipment, are $82.5 million per year. Variable costs, mostly fossil fuel costs, are $25 per megawatt-hour (MWh, or million watts of power used for 1 hour). The new person in charge of demand fore casting prepared a short-range forecast for in next year’s budgeting process. That forecast calls for Tri-County customers to consume 1 million MWh of energy next year.

  1. How much will Tri-County need to charge its customers per MWh to break even next year?
  2. The Tri-County customers balk at that price and conserve electrical energy. Only 95 percent of fore casted demand materializes. What is the resulting surplus or loss for this nonprofit organization?

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