Read Chapter 1 in the California Energy Commission's 1994 electricity report.

Questions

1. Explain why the authors of this document claim that a monopoly is required to handle the transmission of electricity. Use a diagram to illustrate the shape of the long-run average cost curve for such a firm.
2. Why might it be appropriate to introduce competition in the generation and sale of electricity while maintaining the distribution of electricity as a regulated monopoly? Explain the argument behind this "unbundling."