Is it wrong that …

… the first time any concern popped into my head while reading this cartoon was when, half way through, I suddenly thought “where is the demand curve”?

He shows that supply rises as price rises – and that is great.  And given that the marginal cost is zero, this would give pretty awesome profits.  However, it misses the point that we need a demand curve in order to determine price – and generally as price goes up demand goes down.

My solution.  The firm should start buying and wasting power (generally on things that upset their employees) in order to increase demand!

Although, this might not be socially optimal if, ya know, we care about the welfare of the workers …


2 replies
  1. rauparaha
    rauparaha says:

    I thought he meant that, as national supply falls, their company’s production rises and they undercut the other suppliers since their MC of that extra production is near zero. So the price they face rises as they take a larger share of the market. Of course, that presupposes effective competition in the wholesale market for electricity so I don’t know how realistic it is.

  2. Matt Nolan
    Matt Nolan says:


    Re-reading it that is exactly what he is saying. Price is determined exogenously, and for a fixed set of inputs output rises as price rises – which is pretty danged sweet.

    I had presumed that they had already monopolised the market for energy at this point – given that they could undercut everyone.

    So if they are just a residual claimant in the market, they face the “market price” and their productivity increases – which is pretty sweet for profits.

    I can’t understand why the business wouldn’t take over the entire energy market though.

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