. An electricity producer has a constant marginal cost of production equal to $40 per megawatt. The residual demand for its electricity is given by P (q) = a−bq, where P is the price and q is the quantity of power generated by this producer. The producer knows the slope, b, but he vertical intercept of the residual demand curve, a is unknown. Assume A and B are greater than zero. If you get stuck, you may answer any of the following questions for special case where a = 80 And b = 0.5 for partial credit. (a) What is the marginal revenue, M R(q), for this producer? b) What is the optimal q for this producer? (c) What is the electricity producer’s optimal price?
. An electricity producer has a constant marginal cost of production
equal to $40 per megawatt. The residual demand for its electricity
is given by P (q) = a−bq, where P is the price and q is the quantity of
power generated by this producer. The producer knows the slope,
b, but he vertical intercept of the residual demand curve, a
is unknown. Assume A and B are greater than zero. If you get stuck,
you may answer any of the following questions for special case where a = 80
And b = 0.5 for partial credit.
(a) What is the marginal revenue, M R(q), for this producer?
b) What is the optimal q for this producer?
(c) What is the electricity producer’s optimal price?
(d) What is the electricity producer’s optimal bid in a uniform price
Auction?
e) Suppose b is equal to zero. Would the producer have an incentive
to submit a bid above its marginal cost? Explain.
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