Question
I'm having trouble solving this question. Suppose there are two electricity generation technologies in Texas: coal and combined-cycle gas (CCGT). Coal has 100MW of capacity
I'm having trouble solving this question.
Suppose there are two electricity generation technologies in Texas: coal and combined-cycle gas (CCGT). Coal has 100MW of capacity at a marginal cost of $20/MWh and CCGT has 50MW of capacity at a marginal cost of $30/MWh. For now, assume that the market is perfectly competitive.
Demand for electricity is P = 100 - 2Q during off-peak hours and P = 200 - Q during peak hours (where Q is in MWh).
(a) Graph the supply and demand curves (one graph only, including both peak and off-peak demand). Label the equilibrium prices and quantities.
(b) What is the per-MWh profit earned by coal & CCGT during each peak and off-peak hour?
(c) Suppose the government is considering a carbon tax that will raise the marginal cost of coal by more than the marginal cost of CCGT. What differential in the effective tax rates (i.e. the difference in the amount that the tax will raise MC of coal and CCGT) would make CCGT the generating technology during off-peak hours?
(d) Suppose the government imposes a carbon tax that increases MC of coal by $20/MWh (to $40) and the MC of CCGT by $5/MWh (to $35). What is the market price and quantity during peak and off-peak hours? What is the profit per unit per hour of each generation type?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started