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I. Electricity Markets 1. A regulated utility has one electric generating plant that it can call on to generate electricity. It can be described

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I. Electricity Markets 1. A regulated utility has one electric generating plant that it can call on to generate electricity. It can be described as follows: Marginal Plant Fixed Costs (Daily Equivalent) Capacity Costs (MW) ($/MWh) 1 4000 10 50 a) b) c) Demand is given by the following demand function: p = 410 - 10q Assume the regulator requires the utility to set a single price for all units of electricity. What price allows the utility to collect sufficient revenue to cover its fixed costs? Graph the solution and illustrate on the graph the deadweight loss of this form of pricing. Suggest a pricing scheme that would reduce the deadweight loss from the pricing scheme in part b. Be specific about the details of your proposal.

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