Econ

162 Managerial Economics

First Semester, AY 2022-23

Assignment 3B: Linear Programming III

Due on 30 September 2022.

Assume that there are six different means of generating electricity. The maximum capacity
for each source, cost per megawatt, carbon dioxide emissions, and environmental/health
impact are given in the table below.

Coal Clean Coal NatGas Nuclear Hydro Renewable

Maximum 2.6 0.5 1.9 0.75 0.44 0.25
(billion MWh)
Cost $40 $60 $50 $115 $100 $150
CO2 1.1 0.5 0.62 0 0 0
Environ/Health 100 50 80 65 15 15

a) Ignoring the carbon and environmental impacts, what should be the output of each
energy source so as to minimize the average cost per megawatt hour, while producing 3.8
billion MWh in total?
b) Answer the question in (a) with the added constraint that carbon emissions should
be no greater than 0.5 ton per MWh of electricity generated. What should be the output of
each energy source? What roles do clean-coal and renewable energy sources play? Is it
possible to reduce carbon emissions below .35 ton per MWh? Explain.
c) Suppose that government regulations dictate that twin goals - 0.4 ton of CO2 per
MWh and an environmental/health score no greater than 65 - must both be met. Determine
the cost- minimizing mix of energy sources. Proponents of nuclear power argue that this
source could provide a total capacity of 1.25 MWh of electricity if enough new plants were
built over the next 30 years. Is such a nuclear expansion warranted?
d) An alternative to a CO2 emission standard is a carbon tax. Policy makers have
proposed a tax of $80 per ton of CO2 emissions to reflect the expected cost of increased
global warming. Such a tax would raise the total cost per MWh of the first three energy
sources. For instance, an $80 tax would imply an added (80)(1.1) = $88 cost per MWh for
coal-fired electricity. Under the $80 tax, what mix of generating plants minimizes the
average cost of electricity? How high would the carbon tax have to be to spur expansion of
renewable energy sources?