The Maxwell School
Syracuse University
Syracuse University
Here are the final numerical results for each section of the exam. You can use them to check your work if you do the exam for practice. If you have trouble with the problems, or don't get the answers shown here, stop by during office hours or make and appointment and we can go over them.
(a) Market equilibrium: Q=2000, P=100. Efficient Q=1000.
(b) T=$100.
All quantities are in millions of MWh, all prices are in dollars per MWh, and all surpluses are in millions of dollars.
(a) Market Q=160; P=$40; Qf=150; Qr=10; renewable fraction=6.25%.
(b) Qf=132; Pf=$30.8; Qr=31; Pr=$50.5; renewable fraction=19%.
(c) Helpful intermediate steps: original Q bought by 80 firms=128; original Q bought by 20 firms=32; these are needed for the CS calculations. Changes in surplus: CSf=+$1190; CSr=-$330; total CS=$860; PSf=-$1291; PSr=+$215; total PS=-$1076. The utilities (buyers) as a group gain because the supply of fossil electricity is very inelastic: the price falls sharply as the demand for it drops when more renewables are mandated.
(d) The overall effect is a loss of $216.
Question 3
(a), (b) NPVs of each plant under each case and the corresponding expected values:
| BAU | RPS | Expected | |
| Gas | +$702 million | -$328 million | +$83 million |
| Wind | -$769 million | +$603 million | +$54 million |
| Hybrid | -$34 million | +$137 million | +$69 million |
A risk-neutral firm would build the gas plant.
(c) The expected utilities (of the gross payoffs including the $2 billion): gas=1269, wind=1254, hybrid=1274. Certainty equivalents: gas=$2.044 billion, wind=$1.972 billion, hybrid=$2.068 billion. The manager would choose the hybrid plant. Although it has a lower expected value than the gas plant, it has considerably less uncertainty.