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July 21, 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 situation where there are n identical firms with identical total cost functions (TC = 50 + 5 q). Market demand is equal to p = 35 – 4 q. Assume that only one of these firms is in the market (incumbent) and that the other n-1 firms are not. Also, assume that firms’ fixed costs are not sunk costs. What is the expected market equilibrium (price and quantity)? What are the properties of this equilibrium? Illustrate your answer with a graph. (4 points) 3 2) Consider a fully informed regulator who chooses a simple Two-part tariff mechanism. Assume that there are N identical consumers in the market, each with demand qi and gross surplus of Si. Knowing that the regulated firm’s total cost function is TC = F + cq, respond to the questions below. (4 points) A) From an efficiency perspective, is this tariff structure better than the Ramsey-Boiteux solution? Motivate your answer. B) Describe the structure of the tariff by indicating: •…