Econ 180 Homework Exercise: Regulation & Antitrust Policy - Electric Power Market Analysis, Assignments of Economics

Download Econ 180 Homework Exercise: Regulation & Antitrust Policy - Electric Power Market Analysis and more Assignments Economics in PDF only on Docsity! Regulation & Antitrust Policy (Econ 180) Signature: Drake University, Spring 2009 William M. Boal Printed name: HOMEWORK EXERCISE #10 "Regulation of Electric Power" Due April 15, 2009 INSTRUCTIONS: Please enter your answers in the boxes provided. Point values are noted in brackets. (1) [Joint costs: 15 pts] Suppose the market for paid spaces in private parking garages downtown is given by the following graph. There are a total of 600 spaces in all garages. Note that the marginal cost of supplying a parking space is zero until all 600 spaces are taken. Then the marginal cost becomes vertical. $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 0 100 200 300 400 500 600 700 800 900 Cars parked per day F e e f o r a ll -d a y p a rk in g Marginal cost Weekday demand Weekend demand a. What is the equilibrium price of a parking space on weekdays? $ b. What is the equilibrium price of a parking space on weekends? $ c. Compute the total annual revenue received by private parking lots. Assume 260 weekdays per year and 105 weekend days per year. $ thousand d. Suppose the annual cost of all private parking lots together is $500,000. Would you expect there to be more private parking lots in the future, fewer parking lots, or no change? e. Justify your answer to part (d). Regulation & Antitrust Policy (Econ 180) Drake University, Spring 2009 Homework Exercise #10 Page 2 of 4 (2) [Peak-load pricing: 32 pts] Suppose cost and demand for electric power are given by the following graph. $0.00 $0.02 $0.04 $0.06 $0.08 $0.10 $0.12 $0.14 0 10 20 30 40 50 60 70 80 90 100 110 120 Kilowatt-hours (thousands) P ri c e p e r k il o w a tt -h o u r SRMC LRMC Peak demand Off-peak demand First, suppose efficient peak-load pricing is used. a. Find the price of electricity during the peak period $ per kWh b. Find the quantity of electricity demanded during the peak period. thousand kWh c. Find the price of electricity during the off-peak period $ per kWh d. Find the quantity of electricity demanded during the off-peak period. thousand kWh Now suppose instead a uniform price of $0.06 per kilowatt-hour is imposed in both peak and off-peak periods. e. Find the quantity of electricity demanded during the peak period. thousand kWh f. Find the quantity of electricity demanded during the off-peak period. thousand kWh g. Would generation capacity have to increase, decrease, or stay the same to accommodate uniform pricing? h. Compute the social deadweight loss from uniform pricing. $ thousand