Dragon Power Ltd is considering the construction of a new power plant in addition to the...

 

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Dragon Power Ltd is considering the construction of a new power plant in addition to the 50 MW power plant it already operates in the Syldavian electricity market. Possible capacities for the new plant are 50, 100, and 150 MW. The marginal cost of production of the existing plant and of the new plant is 25$/MWh. Dragon Power's analysis of the Syldavian market shows that: : a) b) c) d) Its competitors currently operate 200 MW of generation capacity The incremental cost of operation of the generation capacity of its competitors is 30 $/MWh The demand can be represented by the demand curve =450-D where D is the total demand and is the market price. Using a Cournot model, determine the capacity of the new plant that would maximize the total hourly operating profit of Dragon Power. What is the total operating profit of Dragon Power with this plant in service? What would be the effect of the construction of a new plant of the optimal capacity on the hourly profit of Dragon Power's competitors? Assuming that this plant is built and that the demand is 300MW, estimate how much imperfect competition in the Syldavian market costs consumers at each hour. Another team of analysts estimates that the demand curve of the Syldavian market is = 440-1.2 D. How does this revised estimate affect the profitability of the optimal new plant? (Assume that the plant must make an hourly profit of 6000$/h to cover its fixed costs). What can you conclude about the robustness of the Cournot model? Dragon Power Ltd is considering the construction of a new power plant in addition to the 50 MW power plant it already operates in the Syldavian electricity market. Possible capacities for the new plant are 50, 100, and 150 MW. The marginal cost of production of the existing plant and of the new plant is 25$/MWh. Dragon Power's analysis of the Syldavian market shows that: : a) b) c) d) Its competitors currently operate 200 MW of generation capacity The incremental cost of operation of the generation capacity of its competitors is 30 $/MWh The demand can be represented by the demand curve =450-D where D is the total demand and is the market price. Using a Cournot model, determine the capacity of the new plant that would maximize the total hourly operating profit of Dragon Power. What is the total operating profit of Dragon Power with this plant in service? What would be the effect of the construction of a new plant of the optimal capacity on the hourly profit of Dragon Power's competitors? Assuming that this plant is built and that the demand is 300MW, estimate how much imperfect competition in the Syldavian market costs consumers at each hour. Another team of analysts estimates that the demand curve of the Syldavian market is = 440-1.2 D. How does this revised estimate affect the profitability of the optimal new plant? (Assume that the plant must make an hourly profit of 6000$/h to cover its fixed costs). What can you conclude about the robustness of the Cournot model?

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a The total hourly profit of Dragon Power can be determined by setting marginal cost equal to price ... View the full answer