Regulation and Antitrust Policy (Econ 180) Drake University, Spring 2009 William M. Boal

Regulation of Electric Power

### Version A

I. Multiple Choice

(1)c. (2)b. (3)e. (4)b. (5)c. (6)d. (7)d. (8)a. (9)d.

II. Problems

(1) [Sources of market power: 18 pts]

1. increases, decreases.
2. decreases, increases.
3. increases, decreases.

1. 80 thousand kWh is the capacity of the current generating system.
2. \$0.12 per kWh.
3. 80 thousand kWh.
4. \$0.04 per kWh.
5. 60 thousand kWh.
6. 90 thousand kWh.
7. 30 thousand kWh.
8. increase.
9. 10 thousand kWh.
10. \$1 thousand.

(3) [Wholesale power markets, economic dispatch: 20 pts]

1. Demand and supply "curves" should be stairsteps.
2. Generator A at 40 megawatt-hours, generator B at 30 megawatt-hours, generators C and D shut down.
3. \$20 per mWh.
4. Generator B.

III. Critical thinking

The Meredith 101 lecture hall is an input that is a common cost because the more classes are scheduled by CAS, the fewer classes can be scheduled by CBPA, holding constant this input. If it were a joint cost, then classes could be scheduled by both colleges simultaneously! (Full credit requires a graph of a straight-line production-possibility curve.)

### Version B

I. Multiple Choice

(1)a. (2)d. (3)e. (4)c. (5)a. (6)c. (7)a. (8)b. (9)b.

II. Problems

(1) [Sources of market power: 18 pts]

1. decreases, increases.
2. decreases, increases.
3. increases, decreases.

1. 90 thousand kWh is the capacity of the current generating system.
2. \$0.10 per kWh.
3. 90 thousand kWh.
4. \$0.04 per kWh.
5. 70 thousand kWh.
6. 100 thousand kWh.
7. 530 thousand kWh.
8. increase.
9. 10 thousand kWh.
10. \$0.5 thousand.

(3) [Wholesale power markets, economic dispatch: 20 pts]

1. Demand and supply "curves" should be stairsteps.
2. Generator A at 40 megawatt-hours, generator B at 50 megawatt-hours, generator C at 20 megawatt-hours, generator D shut down.
3. \$40 per mWh.
4. Generator C.

III. Critical thinking

Save as version A.