Suppose you are an economic advisor to the city. There are currently three electricity power generators in your city. You are considering consolidating the number of electricity firms so there will be only one electricity firm.

1. Describe the different type of costs to produce electricity. Categorize the costs by fixed and variable, and then indicate/describe the profit maximizing condition.
2. There is currently a heat wave in the country, meaning that there are more air conditioners, running for longer periods, and at colder temperatures. What happens in the market for electricity in your city? Consider which curve shifts and the corresponding change in equilibrium price and quantity.
3. Compare the equilibrium price and quantity for electricity in the original market relative to if the market is consolidated. Explain the main characteristics of each market structure.
4. Explain and describe your recommendation about whether to consolidate electricity generation.