(a) (b) Write down Punggol Power Co.'s fixed cost, marginal cost, and total cost function. Briefly...

  

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(a) (b) Write down Punggol Power Co.'s fixed cost, marginal cost, and total cost function. Briefly explain your answer for each cost component. Hint: You should think about the order in which power plant(s) should be used, to minimise the costs of supplying a given quantity of power; your final answer may have multiple total cost functions. (6 Marks) Using a well-labelled graph, illustrate and examine Punggol Power Co.'s marginal cost function for the range Q=0 to Q=25000. (4 Marks) Market demand for electricity is given by P = 2-0.0001Q. If Punggol Power Co. set prices as though it were a perfectly competitive firm, what would be the market price and quantity? (d) (e) Suppose Punggol Power Co. set prices as though it were a monopoly. Market demand remains the same at P=2-0.0001Q. What would be the market price and quantity? (5 Marks) A new energy market policy prevents Punggol Power Co. from selling to customers directly. Instead, Punggol Power Co. must tender for a contract to supply a fixed amount of electricity. The contract is for 22,000 kWh. In the short run, considering the shutdown condition, compute the minimum price that Punggol Power Co. can afford to bid in their tender. Explain your reasoning. (5 Marks) Punggol Power Co. is considering restructuring their assets to become more competitive in the long run when tendering to supply electricity. PPC is considering selling the natural gas plant. The sale price is expected to equal existing debt for the plant and will not generate profits. Should PPC sell their plant, and how does their decision depend on forecasts of future electricity demand? Remember that PPC has a contract to purchase as much power as needed for resale - for $0.30 per kWh. (Hint: PPC's objective should be to minimise their long-run breakeven price) (a) (b) Write down Punggol Power Co.'s fixed cost, marginal cost, and total cost function. Briefly explain your answer for each cost component. Hint: You should think about the order in which power plant(s) should be used, to minimise the costs of supplying a given quantity of power; your final answer may have multiple total cost functions. (6 Marks) Using a well-labelled graph, illustrate and examine Punggol Power Co.'s marginal cost function for the range Q=0 to Q=25000. (4 Marks) Market demand for electricity is given by P = 2-0.0001Q. If Punggol Power Co. set prices as though it were a perfectly competitive firm, what would be the market price and quantity? (d) (e) Suppose Punggol Power Co. set prices as though it were a monopoly. Market demand remains the same at P=2-0.0001Q. What would be the market price and quantity? (5 Marks) A new energy market policy prevents Punggol Power Co. from selling to customers directly. Instead, Punggol Power Co. must tender for a contract to supply a fixed amount of electricity. The contract is for 22,000 kWh. In the short run, considering the shutdown condition, compute the minimum price that Punggol Power Co. can afford to bid in their tender. Explain your reasoning. (5 Marks) Punggol Power Co. is considering restructuring their assets to become more competitive in the long run when tendering to supply electricity. PPC is considering selling the natural gas plant. The sale price is expected to equal existing debt for the plant and will not generate profits. Should PPC sell their plant, and how does their decision depend on forecasts of future electricity demand? Remember that PPC has a contract to purchase as much power as needed for resale - for $0.30 per kWh. (Hint: PPC's objective should be to minimise their long-run breakeven price)

Answer rating: 100% (QA)

a Fixed Cost The fixed cost for Punggol Power Co PPC is the cost of depreciation for both power plants and the management costs which is 4500 This cost does not vary with output and is fixed for the e... View the full answer