Business Economics Assignment

Assignment on Analysis of Case Study

The Early Bird Electric Power Load Dispatching
Submitted to Prof. Dr. D. Sunitha Raju
Submitted by:
Amit Sahay - 03
Nitin Sachdeva - 19
Rupesh Aggarwal - 33

EPGDIB 16-18, Section - A, Group: 03

Objective
If each plant is assumed to be a profit head, then does operational efficiency translate
into profit maximization.
Basics
1. Plant is said to be operationally efficient when Average Cost (AC) is
minimum or average product is maximum.
2. Increase in productivity cause costs to fall while decreases in productivity
cause costs to rise.
3. Business decisions are made to earn profit i.e. = TR TC
4. Profit maximization is a function of TR and TC, i.e. minimum TC and
maximum TR. Profit maximizing output: MR = MC

(Please check whether graph required? As per my understanding

it is not serving any purpose.)

Early Bird System Overview

Production function of Southern company depends on following parameters:
1.
2.
3.
4.

Fuel
Labor
Duration of service
Wear and Tear etc.

In this manner operation efficiency of Southern company depends on how effectively

the above parameters ate used. In order to have optimal use of variable and fixed
parameters, Southern Companys engineer from time to time test operating efficiency
of every piece of power generating unit by collecting data of above mentioned
parameters.
However, operation efficiency of each unit varied on its own parameters and these
results in separate production and cost function for that unit. Information on
production function is fed into Early Bird to obtain Marginal cost function and MC
values calculated for a particular generating unit and then operate the grid in manner
to reduce overall cost i.e. MC.
Analysis on Each Unit a Profit Head
As each unit is assumed to perform as profit head then each unit has to utilize its
resources to maximize their profits by increasing productivity and reducing cost.
Considering Average cost (AC) consists of two variable (as example only) lets check
relation between AC and Average product (AP):
AC

TC TF C TV C

AFC AVC
Q
Q
Q

 PK .

PK .

K
L
PL .
Q
Q

1
A P

PL.
K

1
A P

AC is inversely related to AP i.e. if AP is maximum AC is minimum and vice-versa.

This relation shows that if each unit works as profit head they will strive to reduce
there cost and increase productivity.
In this manner, above approach is against the functioning of Early Bird system, which
continuously work to determine lower cost and increasing profits for Southern
Company as whole not for single individual unit.
Conclusion
When each plant is assumed to be a profit head, the plant operational efficiency may
not translate to overall profit maximization for Southern Company.