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June 28, 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 (3 points) Given information on cost and demand functions, when would we predict that an industrial sector would be competitive and when that it would be monopolized? (1a) Provide a clear answer using illustrative graphical representations (1b) Which indicator is best suited to measure market concentration when there is a dominant firm? Motivate your answer 3 Question 2 (3 points) It would seem that regulating a monopoly to eliminate the associated inefficiency is easy: a perfectly informed regulator has only to set price equal to marginal cost. (2a) Unfortunately, this analysis leaves out one important aspect of the problem, which one? Illustrate your answer using the graph below (2b) What is an alternative price setting approach and why would a regulator consider it? Illustrate your answer using the same graph Average Cost Market demand Marginal Cost Price Output 4 Question 3 (3 points) Consider a firm who faces two demand…