Wednesday, January 8, 2014

Coal Plant Closures

Coal plants are shutting down since the price of electricity has been falling, making it unprofitable to keep producing electricity.  Here is how.  Natural gas (a substitute input for producing electricity) prices have been falling, resulting in a electricity prices falling below the cost of producing electricity with coal.  Since the price of electricity is less than the average total cost of producing electricity, the firms are making a loss, then economically the firms should exit (long-run).

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