1. At the household level, greater energy efficiency can be driven by market force in two ways including .
a. substituting capital for energy in response to increasing energy prices
b. greater energy efficiency enabled by technological changes
c. increasing capital cost for energy efficiency improvement
d. both (a) and (b)
2. Energy efficiency gap refers to____.
a. a significant difference between observed level of energy efficiency and optimal energy use
b. underinvestment in energy efficiency relative to the social optimal level
c. the low observed adoption rate of energy-efficient technologies
d. all of the above
3. If a consumer is indifferent between receiving $25 now and $30 in six months, what is the implicit discount rate?
a. 0.25 c. 0.48
b. 0.36 d. 0.65
4. Heat rate, i.e., BTUs per kWh of power, is used commonly to measure power plant efficiency. Note that one kWh of power produces 3,412 BTUs of energy. What is the efficiency (in %) of a plant with a heat rate of 9,500?
a. 278% c. 36%
b. 100% d. need more information
5. Power plants' operating decisions, including which plants to run and how long, are made based on .
a. sunk costs c. variable costs, mainly fuel costs
b. plant construction costs d. fixed costs
6. In the wholesale electricity market, power exchanges use bid prices to establish the plant dispatch order. The market clearing price is determined by.
a. the final bid that has been accepted c. the lowest bid
b. the average bidding prices d. the actural generation cost on the particular hour
7. Electricity generation plants are dispatched based on production costs in "merit order", which means .
a. The least expensive plants run the most
b. when demand is low, only low-cost plants operate
c. when demand is high, almost all generation facilities are put in produciton and production costs are high
d. all of the above
8. An industry is a natural monopoly if ____.
a. there are economies of scale for producing the products
b. the products are produced at the lowest variable cost
c. the cost function is subadditive, i.e., the production cost is the lowest if produced by a single firm
d. the industry has large fixed costs
9. In the multiproduct case, economies of scale are neither necessary nor sufficient for costs to be subadditive (i.e., natural monopoly) because .
a. the interdependence among outputs becomes important
b. diseconomies of scope can outweigh economices of scale
c. average cost declines as output increases
d. a and b
10. The key insight of Averch-Johnson Effect is that ____.
a. because allowed profit varies directly with the rate base (capital), the monopolist tends to substitute too much capital for other inputs
b. When maximizing profit, the monopolist acts as if the cost of capital is cheaper than it actually is
c. As the regulatory agency permits the monopoly to earn a higher rate of return on capital than its true cost, the firm perceives its capital cost is less than the true cost
d. All of the above
Short Answer
11. A household is considering to invest on an energy efficienct applicance with the initial capital cost of $8,000. Assume in the next five years, once the new appliance is installed, the annual energy cost will be saved by $2,000 each year. Use discrete discounting for all questions.
(i) Based on the cost-benefit framework we discussed in class, should the household invest or not (assume a constant disount rate of 0.10 for the whole period).
(ii) If we assume the hyerbolic discount rates as in the following table, should the household invest or not?
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
|
0.10
|
0.08
|
0.06
|
0.04
|
0.02
|
(iii) If the household decides to invest, what is the implied (range of) discount rate? You may consider using Excel-Solver.
12. The operator of a centralized market for electrical energy has received the bids shown in the table below for the supply of electrical energy during a given period.
|
Company
|
Amount (MWh)
|
Price ($/MWh)
|
|
Red
|
100
|
12.5
|
|
Red
|
100
|
14.0
|
|
Red
|
50
|
18.0
|
|
Blue
|
200
|
10.5
|
|
Blue
|
200
|
13.0
|
|
Blue
|
100
|
15.0
|
|
Green
|
50
|
13.5
|
|
Green
|
50
|
14.5
|
|
Green
|
50
|
15.5
|
(i) Build the supply curve (using table or graph)
(ii) Assume that this market operates unilaterally, that is, that the demand does not bid and is represented by a forecast. Calculate the market price, the quantity produced by each company and the revenue of each company for each of the following loads: 400MW, 600MW, 875 MW.
(iii) Suppose that instead of being treated as constant, the load is represented by its demand curve, which is assumed to have the following form: D = L - 4.0P , where D is the demand, L is the forecasted load in (ii), i.e., 400MW, 600MW, 875 MW, respectively, and P is the price. Calculate the market price, quantity produced by each company and the revenue of each company.
13. Assume a natural monopoly with total cost C = 500 + 20Q. Market demand is Q = 100 - P.
(1) If price is set at marginal cost, what is the monopolist's profit?
(2) The answer to part (1) implies that linear (or uniform) marginal cost pricing has a serious problem in natural monopoly situation. Suppose that average cost pricing is employed. Find price, output, and the deadweight loess compared to part (1).