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Optimal Willingness to Supply Wholesale Electricity under Asymmetric Linearized Marginal Costs

  • David Hudgins

    (Department of Economics, University of Oklahoma, USA)

Registered author(s):

    This analysis derives the profit-maximizing willingness to supply functions for singleplant and multi-plant wholesale electricity suppliers that all incur linear marginal costs. The optimal strategy must result in linear residual demand functions in the absence of capacity constraints. This necessarily leads to a linear pricing rule structure that can be used by firm managers to construct their offer curves and to serve as a benchmark to evaluate firm profit-maximizing behavior. The procedure derives the cost functions and the residual demand curves for merged or multi-plant generators, and uses these to construct the individual generator plant offer curves for a multi-plant firm.

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    Article provided by Econjournals in its journal International Journal of Energy Economics and Policy.

    Volume (Year): 2 (2012)
    Issue (Month): 4 ()
    Pages: 307-317

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    Handle: RePEc:eco:journ2:2012-04-9
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    1. Holmberg, P. & Newbery, D & Ralph, D., 2008. "Supply Function Equilibria: Step Functions and Continuous Representations," Cambridge Working Papers in Economics 0863, Faculty of Economics, University of Cambridge.
    2. Richard Green, 2007. "Nodal pricing of electricity: how much does it cost to get it wrong?," Journal of Regulatory Economics, Springer, vol. 31(2), pages 125-149, April.
    3. Talat S. Genc & Stanley S. Reynolds, 2010. "Supply Function Equilibria with Capacity Constraints and Pivotal Suppliers," Working Papers 1007, University of Guelph, Department of Economics and Finance.
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