Download PDF by V Cook: Analysis of Distance Protection

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His finding led to the realization that the regulated utilities in his sample were characterized by interproduct discomplementarities, since his empirical results confirmed that @ 2 CðY Þ=@Y1 @Y2 > 0 ð2:31Þ This particular result, which was anticipated by Kahn, can be attributed (at least in part) to the type of regulation imposed on these firms; that is, aver age cost pricing in which firms are certainly not incentivized to minimize costs. , the rate base). For an investor-owned utility, this is a large component of the revenue requirement on which the utility is allowed to earn a return to its investors.

Furthermore, because some electricity is sold in bulk while the rest is sold to various classes of end users, both economies of scale and of scope arise as these multiple outputs jointly utilize this interconnected transmission grid. Furthermore, the very nature of this grid yields additional savings due to the network economies or economies of The Theory of Natural Monopoly 29 density, which play a critical role in such an industry. ” Hence, no longer is it sufficient to measure only returns to scale; returns to density must also be considered if one is to obtain precise and relevant measures of industry structure and form appropriate public policy.

Schmalen see (1978) asserted that: “Total distribution cost depends on the cost of transmitting services and on the spatial pattern of demand. ” Nonetheless, Schmalensee developed a model to show that economies in transmission at all service flows are sufficient, but not necessary, for dis tribution to be a natural monopoly. Furthermore, pricing at marginal cost fails to cover total cost, and even in the presence of economies of scale in transmission, average distribution cost may rise with total demand.

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