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September 5, 2017 ENERGY ECONOMICS – FOLDER 1 M.Sc. in Energy Engineering Duration: 2 hours and 30 minutes During the test students are not allowed to use class notes or textbooks or to leave the classroom Mark the exam folder with your Name, Last Name and Politecnico di Milano Id. Number At the end of the test hand over only the exam folder Name Last Name Id. Number Instructions and grading system Read the questions carefully and provide answers to all the points raised in each question. It is important to use a correct and appropriate terminology for all economic and technical terms. Remember to define all variables and parameters used in your answers. A full score will be awarded only if the answer is correct and complete. A partial score will be awarded only if the partial response, albeit incomplete, does not contain any errors. 2 Question 1 (2 points) Define a generic linear demand curve and derive the expression for its elasticity to price, e. (1a) Graphically represent the demand curve and the price elasticity, as functions of quantity. (1b) Specify for what values of e revenues increase by increasing the price and where they decrease by increasing the price. Illustrate your answer on the graph above. 3 Question 2 (3 points) Consider a market where there are n firms with identical, globally sub-additive cost functions. One firm is in the market and the others are potential entrants. (2a) Define the market equilibrium when there are no sunk costs and the market demand is linear. Motivate your answer. Illustrate your answer also graphically. (2b) Discuss the need for regulatory intervention under the same hypotheses. Motivate your answer. 4 Question 3 (3 points) (3a) Describe the concept of competition for the market introduced by Demsetz in 1968. Make sure to…