E130PS2A

# E130PS2A - Q = (80 60) 4 = \$80. 1 C. If you shut down one...

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P r o f e s s o r V a l e r i e R a m e y Econ 130, Fall 2007 Abbreviated Answers to Problem Set #2 1. A. Q* = 90. C. P m = 55, Q m = 45. D. P P AC = 16 Q AC = 84. 2. Because electricity is nonstorable and extra capacity is expensive, there is a sharply rising supply curve during peak hours. Because there is no real-time pricing, demand is very inelastic. See handout. 3. See notes. 4. See notes. 5. See handhout. 6. A. The first 16 units of electricity have a constant MC of 60. The MC is 80 for the 17 th unit, 100 for the 18 th , etc. Thus, the supply curve looks like: S 140 P 60 16 20 Q At Q = 17, MC = \$80, so equilibrium price is \$80. B. Profits = (p – mc)

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Unformatted text preview: Q = (80 60) 4 = \$80. 1 C. If you shut down one of your plants, the industry supply curve shifts back as follows: D S 140 P 100 60 15 19 Q Now, MC 16 = 80, MC 17 = 100, etc. The equilibrium price rises to P = \$100. So shutting down one of the efficient plants will cause the equilibrium price to rise from 80 to 100. Firm 1s profits are now (100 60) 3 = \$120. So he can raise his profits if he shuts down one of the plants since supply and demand are so inelastic! Firms 2, 3 and 4 have similar incentives. D. See lecture notes. 2...
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## This note was uploaded on 09/08/2008 for the course ECON 130 taught by Professor Staff during the Winter '08 term at UCSD.

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E130PS2A - Q = (80 60) 4 = \$80. 1 C. If you shut down one...

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