You are in a future version of the world in which all fossil fuel generation of electricity has been prohibited because of global warming. The only technologies available are wind and nuclear. Any amount of electricity can be generated from wind at a cost given by TC = 10Q where TC is the total cost and Q is the number of units of electricity. Wind turbines have no sunk costs. Nuclear power plants have a cost function given by TC = 540 + 4Q. Contrary to current reality, in the world of this problem nuclear plants have fixed costs but not sunk costs and take no time to build. Any number of companies utilizing either wind power or nuclear power can enter or exit the electricity generating business at any time with their costs entirely determined by the cost function and the number of units generated. The demand function for electricity is given by Q = 50 – P where Q is the number of units demanded and P is the price of electricity. Consumers cannot distinguish electricity generated by wind from that generated by nuclear. Assume that environmental effects, distribution costs, and any other factors not specified are irrelevant.
What is the equilibrium price?
How will the electricity be generated?
a. all wind
b. all nuclear
c. mixture of wind and nuclear