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September 11, 2015 ENERGY ECONOMICS Master of Science 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 1) Consider a single firm, with no competitors, which produces one product with no substitutes. The firm’s total costs are: TC = 50 + 5q. Market demand is equal to p = 45 – 4 q. (i) What is the expected market equilibrium (price and quantity)? (ii) Illustrate your answer with three graphs, one for price, one for total revenues and total costs, and one for profit, all as a function of quantity. Show the main correspondences across these graphs. (iii) Calculate the firm’s profit at equilibrium and illustrate it in the first of the above graphs. (iv) Can the above equilibrium be found where the demand curve is inelastic? Motivate your answer. (v) Is it possible to find the same equilibrium with more than one firm? If your answer is “no”, explain why; if it is “yes”, explain why and how. (vi) Is the level of output produced by the firm at equilibrium Pareto efficient? If your answer is “yes”, explain why. If your answer is “no”, explain…