Optimal Willingness to Supply Wholesale Electricity under Asymmetric Linearized Marginal Costs

David Hudgins

International Journal of Energy Economics and Policy, 2012, vol. 2, issue 4, 307-317

Abstract: This analysis derives the profit-maximizing willingness to supply functions for singleplant and multi-plant wholesale electricity suppliers that all incur linear marginal costs. The optimal strategy must result in linear residual demand functions in the absence of capacity constraints. This necessarily leads to a linear pricing rule structure that can be used by firm managers to construct their offer curves and to serve as a benchmark to evaluate firm profit-maximizing behavior. The procedure derives the cost functions and the residual demand curves for merged or multi-plant generators, and uses these to construct the individual generator plant offer curves for a multi-plant firm.

Keywords: Wholesale Electricity; Cost; Willingness to Supply; Linear Analysis; Multi-Plant; Asymmetric (search for similar items in EconPapers)
JEL-codes: D43 L11 L94 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ2:2012-04-9

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