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January 22, 2018 ENERGY ECONOMICS 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) (1a) Define a generic linear demand curve and derive the expression for its elasticity to price, e. Also, graphically represent the same demand curve and its price elasticity, as functions of quantity. (1b) Price elasticity for energy products can be different in the short run vs. the long run. Why and how? Illustrate your answer graphically. 3 Question 2 (4 points) Consider a monopolist with constant marginal costs. What happens to the price chosen by the monopolist when a quantity tax, t, is imposed? (2a) Determine the change in price (Dp: with and without tax) in the case of a linear demand curve (both algebraically and graphically). (2b) Determine the change in price (Dp: with and without tax) in the case of a constant-elasticity demand curve (algebraically only). Compare this result with the one found in point (a). 4 Question 3 (2 points) Consider an independent regulatory authority. (3a) Briefly indicate how it is made…