QUIZ 11 ANSWER KEY
Regulation of Electric Power
Version A
I. Multiple choice [2 pts each: 18 pts total]
(1)d. (2)e. (3)c. (4)c. (5)c. (6)d. (7)b. (8)a. (9)d.
II. Problems
(1) [Peak-load pricing: 40 pts]
- 70 thousand kilowatt hours is the capacity of the generating system.
- $0.14 per kWh.
- 70 thousand kWh.
- $0.04 per kWh.
- 60 thousand kWh.
- 80 thousand kWh.
- 20 thousand kWh.
- increase.
- 10 thousand kWh.
- $1.7 thousand. (This is the sum of areas of two triangles, because too little electricity is supplied in the off-peak period and too much is supplied in the peak period. The first triangle is bounded by SRMC, off-peak demand, and a vertical line at 20 thousand kWh. The second triangle is bounded by LRMC, peak demand, and a vertical line at 80 thousand kWh.)
(2) [Wholesale power markets, economic dispatch: 20 pts]
- Demand and supply "curves" should be stairsteps. Demand is plotted from highest bids to lowest bids. Supply is plotted from lowest asks to highest asks.
- Generator A: 30 megawatt-hours.
Generator B: 0 megawatt-hours.
Generator C: 30 megawatt-hours.
Generator D: 50 megawatt-hours.
- $60 per megawatt-hour
- Generator C.
(3) [Sources of market power: 16 pts--2 pts each box]
- 3.7.
- 0.270.
- decreases, increases.
- decreases, increases.
- increases, decreases.
III. Challenge question [6 pts]
- Drake classrooms are a joint cost for regular-term and summer-term courses. The number of classrooms needed depends on the maximum of regular-term and summer-term courses. Holding the number of classrooms constant there is no continuous tradeoff between the regular-term and summer-term courses--the opportunity cost of summer-term courses (in terms of foregone regular-term courses) is zero. (Full credit requires a graph of a rectangular production-possibility curve.)
- If Drake wants to set tuition so as to price courses at marginal cost, then the cost of classrooms ("capacity") should be included in regular-term courses only. The regular term is the "peak" period when classrooms are almost constantly in use, so the short-run marginal cost is vertical in the regular term. The summer-term is the "off-peak" period when classrooms are mostly empty, so the short-run marginal cost is low and horizontal and does not include the cost of capacity.
Version B
I. Multiple choice [2 pts each: 18 pts total]
(1)b. (2)e. (3)b. (4)a. (5)d. (6)a. (7)a. (8)c. (9)b.
II. Problems
(1) [Peak-load pricing: 40 pts]
- 90 thousand kilowatt hours is the capacity of the generating system.
- $0.14 per kWh.
- 90 thousand kWh.
- $0.02 per kWh.
- 70 thousand kWh.
- 100 thousand kWh.
- 20 thousand kWh.
- increase.
- 10 thousand kWh.
- $2.6 thousand. (This is the sum of areas of two triangles, because too little electricity is supplied in the off-peak period and too much is supplied in the peak period. The first triangle is bounded by SRMC, off-peak demand, and a vertical line at 20 thousand kWh. The second triangle is bounded by LRMC, peak demand, and a vertical line at 100 thousand kWh.)
(2) [Wholesale power markets, economic dispatch: 20 pts]
- Demand and supply "curves" should be stairsteps. Demand is plotted from highest bids to lowest bids. Supply is plotted from lowest asks to highest asks.
- Generator A: 0 megawatt-hours.
Generator B: 50 megawatt-hours.
Generator C: 10 megawatt-hours.
Generator D: 0 megawatt-hours.
- $30 per megawatt-hour
- Generator C.
(3) [Sources of market power: 16 pts--2 pts each box]
- 1.7.
- 0.588.
- decreases, increases.
- decreases, increases.
- increases, decreases.
III. Challenge question [6 pts]
Same as Version A.
[end of answer key]