3. This question is based on the VRR curve in Figure 9.5. Assume that the Gross CONE is $150 per kW/day and thus the Net CONE is $100 per kW/day. The following offers are submitted to the capacity market: Generator A: 2% of target IRM at $50 per kW/day Generator B: 1% of target IRM at $80 per kW/day Generator C: 3% of target IRM at $90 per kW/day Generator D: 3% of target IRM at $150 per kW/day Calculate the clearing price of capacity for this market. It may be helpful to draw a picture.

4. The Kleit and Michaels reading describes how the "Peaker Net Margin" (which is what the Texas market calls the Net CONE) is calculated without considering ancillary services revenues. A typical power plant in a modern electricity market earns twice as much revenue from energy sales as ancillary services sales. Suppose that our power plant from Question 2 could earn $20 per MWh from ancillary services, so that its total annual revenues would be $55 per MWh for each MWh produced. Would this eliminate the need for a capacity payment?