A coal-fired power station produces electricity worth $40 per unit to consumers. However, for each unit produced air pollution is produced, costing $20, which is not reflected in the price of electricity paid by consumers. Suppose a Pigovian tax has been implemented to correct the market distortion. In the Social CBA the production of additional electricity should be priced at:

A power company burns coal to generate electricity. The cost C (x) (in $1000) to remove x% of the air pollutants is given by:

The ‘merit order’ in electricity production is determined by:The unit production costs, from high to low.The fixed production costs, from low to high.The unit production cost, from low to high.The level of pollution in production, from solar to natural gas.

14. How much of the energy in burning coal reaches the consumer as electricity?

Consider an electricity market where the base of the demand curve is vertical and varieslinearly between 4000MW and 8000MW (so is equally likely to be found anywhere inthat range). Above 7500MW demand can be curtailed at a price of $4000/MWh. Themarket is competitive with three types of plants as below.Technology FC per MWh Variable costs perMWhCarbon Emissionsin tonnes perMWhPeak (diesel peaker) $18 $160 25Mid (gas) $35 $50 10Baseload (hydro) $55 $0 0(a)What is the optimal amount of baseload plant that should be built? (2 marks)(b) What is the duration of the price spike so that the peaker plant just recovers itsfixed costs? (2 marks)(c) What is the optimum mid-load capacity? (2 marks)(d) What is the total capacity and hence peak capacity? (2 marks)(e) Sketch the load duration curve and the offer stack (2 marks)(f) Show all plants just cover costs (4 marks)(g) Suppose now the government imposes a tax of $30 a tonne. Suppose there is nochange in capacity (so capacity doesn’t adjust). Calculate the profit that each type ofplant makes. Why do some plants make a profit even though the market iscompetitive? (4 marks)

Marginal Cost and Marginal BenefitQuantity (millions of megawatts) MBprivate MCprivate MCexternal MCsocial1.0 $145 $85 $ $ 2.0 130 90 3.0 115 95 4.0 100 100 5.0 85 105 6.0 60 110  Instructions: Enter your answers as a whole number. a. What is "private quantity" of electricity Texarkana Electric Company will produce each year?    million megawatts per year Now assume the production of each million megawatts of electricity also produces sulfur dioxide (a precursor to acid rain). The external cost of the sulfur dioxide is $20 per million megawatts of electricity production.  b. Fill in the external marginal cost (MCexternal) and the social marginal cost (MCsocial) columns in the table above. c. What is the socially optimal amount of electricity for Texarkana to produce if all costs and benefits are considered?      million megawatts per year