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Comprehensive question (25 points) Energy resource markets tend to have very different characteristics (e

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Comprehensive question (25 points) Energy resource markets tend to have very different characteristics (e.g. coal market, fairly competitive; electricity, natural monopoly; European natural gas, oligopoly) and also tend to create negative externalities. How do these characteristics (market related and externality related) affect use of energy resources (both in the current time period and over time) and do these characteristics encourage efficient use of energy resources? Explain how U.S. energy policy can improve efficiency (if it needs to be improved). 2. (25 points) According to the Energy Information Administration, in 2019 nuclear-based electricity generation accounted for more than 30% of total generation in 12 states (it was more than 50% of total electricity generation in New Hampshire 61%, South Carolina 56%, and Illinois 54%. Assume that similar to California nuclear generation will be taken out of service over the next 50 years in these 12 states. a) Explain and justify how you would recommend addressing this missing generation capacity; discussing financial, environmental, and technical (e.g., are you keeping electricity load equal to generation at all times throughout the year?) implications of your recommendations. (You need to make a recommendation) b) What is an alternative approach to address the problem that you would not recommend and briefly discuss why you not recommend it? c) Why would the assumption be made that nuclear production would be taken out of service? Is this a reasonable assumption? 3. (25 points) You own 2 units (84,000 gallons) of gasoline that you bought at the current spot price of $2.00 per gallon and promised to deliver in two years. Although you have predicted that the price in two years will be $2.08 per gallon, you believe there will be a chance that the price could be as high as $2.50 per gallon or as low as $1.00 per gallon. The margin you put up for the futures contract is $21,000. a) You cannot afford to lose more than the margin in this transaction, so you are going to hedge in the gasoline market. How many units of gasoline should you sell in futures contracts (2 year futures) to be sure that you will not lose more than your $21,000 margin (you may purchase in fractions of units)? b) If the price does turn out to be $2.08 per gallon, how much would you have made without hedging and how much would you have made with hedging? Does this result make sense?