There are some constraints that should be considered in generating electrical power. Example of constraints such as Generator’s Output Limits, Piecewise Linear Cost Function, No-load Cost, Start up Cost, Demand, etc. These constraints should be considered before decision on the amount to be produced is decided.
Limit:: When the calculation of MC = Price give the amount of power is less the Pmin, the output should be Pmin. If the generator can be shut down, the shutdown it to reduce loss . If the the amount of power is more than Pmax, then produce at Pmax.
The no load and start up cost are example of quasi fixed cost. There are fixed during the specified condition only.
In fulfilling the demand, the generator also has the opportunity to sell or buy depending on the price.
So the question is if the price is higher than MC, what should generator do? and what if the price is less than MC, what should the generator do?
One suggestion is that customer has to be treated differently. I.e
For bulk customer who underwrites a specific volume consumption you may consider a rate and other consumers who do not constitute volume you may consider a higher rate. This is a broad suggestion
The functional relationship between costs and production over a period of time is a fundamental aspect of cost analysis. A cost function presents different results when the plant operates with different percentages of use. But, as we said earlier, production is a function of how resources are used.
Thus, while the production function produces the relationship between the inputs and the product, once the prices of the inputs are known, the costs of a production can be calculated. As a result, the level and cost performance of a factory, when the level of production varies, are directly related to 2 parameters:
1. The characteristics of its own production function
2. Purchase prices of inputs
The Generation Gap is real! The cost price relationship in an era of increasing digitalization and absence of face to face Communication is to be seen!
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