The annual market marginal demand curve for electricity is MB=400-1.5Q. The annual marginal cost curve is MC=50+Q. The government is considering whether to build one of three plants. The first will have a maximum production capacity of 50 units of Q; the second a maximum capacity of 100 units, and the third, a maximum capacity of 200 units. Plants need to be operated at maximum capacity; otherwise, excess investment cost (not depicted in the diagram) will be incurred. Given this background: What is the annual benefit of the 50-unit plant? What is the annual cost? What is the annual net benefit?

The annual market marginal demand curve for electricity is MB=400-1.5Q. The annual marginal cost curve is MC=50+Q. The government is considering whether to build one of three plants. The first will have a maximum production capacity of 50 units of Q; the second a maximum capacity of 100 units, and the third, a maximum capacity of 200 units. Plants need to be operated at maximum capacity; otherwise, excess investment cost (not depicted in the diagram) will be incurred. Given this background: What is the annual benefit of the 50-unit plant? What is the annual cost? What is the annual net benefit?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter14: Pricing Techniques And Analysis

Section: Chapter Questions

Problem 7E

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