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Economies of scale up output Q'

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Presentation on theme: "Economies of scale up output Q'"— Presentation transcript:

1 Economies of scale up output Q'
Cost LAC Q’ Output

2 Cost LAC1 LAC2 Q’ Q* Q” Output
The cost function is subadditive up to Q*, meaning a single firm can produce any output less than Q* more cheaply than 2, 3, 4, or any number of firms with each supply some fraction of Q* Cost LAC1 LAC2 Q’ Q* Q” Output

3 $ $ LAC Demand Demand LAC 1000 200 1000 MWHs MWHs
Distribution fits our “traditional” model of natural monopoly, but not generation.Hence they should be integrated only if there are economies of scope between power generation and distribution $ $ LAC Distribution Generation Demand Demand LAC 1000 200 1000 MWHs MWHs

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