Question
Arcon is a supplier of electricity in Oregon. In the Oregon market, Arcon is not a price taker. In other words, the quantity of electricity
Arcon is a supplier of electricity in Oregon. In the Oregon market, Arcon is not a price taker. In other words, the quantity of electricity supplied by Arcon affects the price of electricity in Oregon. The monthly demand for Arcon's electricity in Oregon is given by =12,0001/2, where P is measured in dollars per million kilowatt hours and Q is measured in millions of kilowatt hours. Arcon can produce up to 5 billion kilowatt hours in one month. Arcon has fixed costs of $1 million per month. Its marginal cost is constant at $12,000 for each 1 million kilowatt hours supplied.
Given the demand and cost information above, how much electricity will Arcon supply to the Oregon market? What will be the price of electricity in Oregon? Will the firm produce at capacity (5 billion kilowatt hours)? Illustrate your answer in a diagram. Be sure to indicate the units on each axis, the quantity supplied, and the price in the market.
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