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

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 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.

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 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.