Consider once again the dilemma facing Consolidated Edisons system operator. To keep things simple, we focus on
Question:
a. The operator envisions three possible scenarios by which the system might weather the demand–supply imbalance at full load. The first scenario he considers “improbable,” the second is a “long shot,” and the third is “somewhat likely.” How might he translate these verbal assessments into a round-number estimate of the probability that 100 percent load can be maintained? What probability estimate would you use?
b. Consider the three outcomes: 100 percent power, 50 percent power, and 0 percent power (i.e., a total blackout). It is generally agreed that 0 percent power is “more than twice as bad” as 50 percent power. (With 50 percent power, some semblance of essential services, police, fire, hospitals, and subways, can be maintained; moreover, with a deliberate 50 percent blackout, it is much easier to restore power later.) What does this imply about the utility associated with 50 percent power? (For convenience, assign 100 percent power a utility of 100 and 0 percent power a utility of 0.)
c. Construct a decision tree incorporating your probability estimate from part (a) and your utility values from part (b). What is the operator’s best course of action? Explain.
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Managerial economics
ISBN: 978-1118041581
7th edition
Authors: william f. samuelson stephen g. marks
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