The above figure illustrates the market for electric power that is served by the

Question

The above figure illustrates the market for electric power that is served by the one utility in Alberta,Canada.

a) If the government did not regulate this utility, what would be the price of a kilowatt hour in thisregion and how much power would be generated?

b) If the government regulates the utility and chooses an average cost pricing rule, what would be theprice of a kilowatt hour and how much power would be generated?

c) If the government regulates the utility and chooses a marginal cost pricing rule, what would be theprice of a kilowatt hour and how much power would be generated?

Explanation / Answer

a.If the government does not regulate this utility 20 megawatts per hour would be produced, and the price charged would be 12 cents per kilowatt hour.

b.If the government regulates and uses an average cost rule, 30 megawatts would be produced and the price charged would be 8 cents per kilowatt hour

c. If he government regulated using a marginal cost rule, 40 megawatts per hour would be produced and the price charged would be 4 cents per kilowatt hour

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