?1 ?1= 50 + 50?1 + ?1 ! Plant 2 and Plant 3 have cost functions...
?1 ?1= 50 + 50?1 + ?1
!
Plant 2 and Plant 3 have cost functions
?2?2 = 75 + 40?2 + ?2
!
?3?3= 100 + 50?3+ 2?3
!
where Q represents the annual generation output of each plant measured in GWh (gigawatthours).
All three plants serve the same geographic area, and each of them has sufficient capacity to
satisfy all electricity demand should they be the lowest cost plant at every output level.
We assume that the market for electricity generation is perfectly competitive. So each
generating plant is a price taker, and therefore takes the market price for electricity as
given. This market price is determined where quantity supplied by all generators in the
market is equal to quantity demanded.
A. What is the marginal cost function for each coal generation plant owned by LEE?
B. What is ATC for each?
C. What is AVC for each?
D. If the going market price for power is $60/GWh, how much would each plant dispatch to
the grid over the year assuming that the plant was actually running?
E. In the short run, what price is required for all three generators to be up and running,
producing positive Q?
Homework Answers
The market below exists for electricity produced by coal at a power plant in Tennessee. The...
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power plant in Tennessee. The marginal private cost (MPC) curve
represents the private costs of the power plant to produce
electricity from coal. Coal-fired electricity generation, however,
also produces an externality. Production creates emissions that can
harm human health, contribute to greenhouse gas emissions, and
degrade ecosystems. The marginal social cost (MSC) curve represents
the cost of coal-fired electricity production in Tennessee,
including the costs borne by society. Use...
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The market below exists for electricity produced by coal at a
power plant in Tennessee. The marginal private cost (MPC) curve
represents the private costs of the power plant to produce
electricity from coal. Coal-fired electricity generation, however,
also produces an externality. Production creates emissions that can
harm human health, contribute to greenhouse gas emissions, and
degrade ecosystems. The marginal social cost (MSC) curve represents
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