Solar and wind got so cheap, so fast Solar panels and wind turbines are more eff

Question

Solar and wind got so cheap, so fast

Solar panels and wind turbines are more efficient than they used to be and they cost less to produce.

Source: The Atlantic, December 2, 2015

Explain how the facts reported in the news clip affect the short-run and long-run average total cost of producing electricity.

How do they affect the marginal cost of producing electricity?

The decrease in the production cost of solar panels and wind turbines _______.

A. decreases the average fixed cost, average total cost, and long-run average cost of producing electricity

B. decreases the average total cost of producing electricity and increases thelong-run average cost

C. decreases the average fixed cost of producing electricity but increases the average variable cost because more electricity is produced

D. decreases the long-run average cost of producing electricity but increases the average total cost of producing electricity in the short run

E. does not change the average fixed cost of producing electricity because the solar panels and wind turbines are variable inputs

With greater efficiency in producing electricity using solar panels and wind turbines, the marginal cost of producing electricity _______.

A. is maximized

B. becomes negative

C. may decrease although marginal cost is already close to zero before using the more efficient equipment

D. increases

E. becomes equal to long-run average cost

Explanation / Answer

Reduction in cost will reduce the marginal cost of production. The cost for producing an additional unit of electricity would fall.

The decrease in the production cost of solar panels and wind turbines will decrease (A) average fixed cost, average total cost and long run average cost of producing electricity as the input price decreases.

The greater efficiency causes marginal cost of producing electricity (E) to become equal to long run average cost. At this point the production is efficient.

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