Peak-Load Pricing with Cross-Price Independent Demands: A Simple Illustration

Anthony Horsley and Andrew Wrobel

Chapter Chapter 2 in The Short-Run Approach to Long-Run Equilibrium in Competitive Markets, 2016, pp 15-19 from Springer

Abstract: Abstract This illustrates the short-run approach to long-run equilibrium with Boiteux’s treatment of the simplest peak-load pricing problem—the problem of pricing the services of a homogeneous capacity which produces a nonstorable good with cyclic demands (such as electricity). A direct calculation of long-run equilibrium poses a fixed-point problem, but, with cross-price independent demands, short-run equilibrium can be determined instant-by-instant by the elementary method of intersecting the supply and demand curves. Long-run equilibrium can then be found by adjusting the capacity so that its unit cost equals its unit value defined as the unit operating profit.

Keywords: Equilibrium Price; Capital Input; Capacity Cost; Cyclic Demand; Convex Technology (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnechp:978-3-319-33398-4_2

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DOI: 10.1007/978-3-319-33398-4_2

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