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ECEN415/715:Physical and Economical Operations of Sustainable Energy Systems Spring 2021 Homework Assignment #1

This document contains a homework assignment with 3 problems related to sustainable energy systems. Problem 1 asks students to derive expressions for marginal cost, revenue, and profit given a cost function. Problem 2 asks students to estimate elasticities and cross-elasticities using data from an experiment. Problem 3 asks students to show that the marginal cost curve intersects the average cost curve at its minimum point. Students are instructed to submit their answers in PDF format by February 1st, 2021.

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62 views3 pages

ECEN415/715:Physical and Economical Operations of Sustainable Energy Systems Spring 2021 Homework Assignment #1

This document contains a homework assignment with 3 problems related to sustainable energy systems. Problem 1 asks students to derive expressions for marginal cost, revenue, and profit given a cost function. Problem 2 asks students to estimate elasticities and cross-elasticities using data from an experiment. Problem 3 asks students to show that the marginal cost curve intersects the average cost curve at its minimum point. Students are instructed to submit their answers in PDF format by February 1st, 2021.

Uploaded by

Jak
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ECEN415/715:Physical and Economical Operations of Sustainable

Energy Systems
Spring 2021 Homework Assignment #1
Notice:
• Submit the electronic copy using ecampus, no hard copy required.

• Please summit your homework only in PDF format

• Due on Feb 1st (Monday), 2021.

Problem 1 (Textbook 2.1) (20 pints)


A manufacturer estimates that its variable cost for manufacturing a given product is given by the
following expression: C(q) = 50q 2 + 1000q [$] where C is the total cost and q is the quantity
produced.
• Derive an expression for the marginal cost of production.

• Derive expressions for the revenue and the profit when the widgets are sold at marginal
Solutions:

The marginal cost can be found by

C 0 (q) = 100q + 1000 [$] (1)

Revenue = Price multiply quantity:

(100q + 1000)q = 100q 2 + 1000q [$] (2)

Profit = Revenue minus cost:

[100q 2 + 1000q] − [50q 2 + 1000q] = 50q 2 [$] (3)

Problem 2 (Textbook 2.6) (40 points)


Vertically integrated utilities often offer two-part tariffs to encourage their consumers to shift de-
mand from on-peak load periods to off-peak periods. Consumption of electrical energy during
on-peak and off-peak periods can be viewed as substitute products. The table below summarizes
the results of experiments that the Southern Antarctica Power and Light Company has conducted
with its two-part tariff. Use these results to estimate the elasticities and cross-elasticities of the
demand for electrical energy during peak and off-peak periods.
Solutions:

Self elasticity during the peak hour can be found by comparing base with experiment 2:
1000 − 985 0.08
= −0.12 (4)
0.08 − 0.09 1000

1
Self elasticity during the off-peak hour can be found by comparing base with experiment 1:
500 − 509 0.06
= −0.108 (5)
0.06 − 0.05 500
Cross elasticity between the peak demand and off-peak price can be found by comparing base
with experiment 1:
1000 − 992 0.06
= 0.048 (6)
0.06 − 0.05 1000
Cross elasticity between the off-peak demand and peak price can be found by comparing base
with experiment 2:
500 − 510 0.08
= 0.16 (7)
0.08 − 0.09 500

Problem 3 (20 pints)


The short term cost can be represented as a function of the level of output y: c(y) = cv (y) + cf ,
where cv y represetnes the variable costs and cf represents the fixed coast. The average cost function
is equal to the sum of the average variables cost and the average fixed cost:

c(y) cv (y) cf
AC(y) = = + (8)
y y y

Show that the marginal cost curve, which is dc(y)


dy , intersects the average cost curve at the average
cost curve’s minimum, as shown in the following figure.

2
Solutions:
Marginal cost M C(y) is

dC(y)
M C(y) = = c0v (y) (9)
dy
To find the minimum of average cost, we make the follow equation to be zero to find y.

dAC(y)
=0 (10)
dy
cf
dAC(y) d( cvy(y) + y ) (cv (y) + cf )0 y − (cv (y) + cf )
=> = = =0 (11)
dy dy y2
Therefore,

cv (y) + cf
c0v (y)y = cv (y) + cf => c0v (y) = = AC(y) (12)
y
We can conclude that marginal cost curve intersects the average cost curve at the average cost
curve’s minimum.

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