Question:

Electric utility companies usually operate their most modern and efficient equipment continuously (i.e. around the clock) and use their older and less efficient equipment only to meet periods of peak electricity demand. (a) What does this imply for the short-run marginal cost of these firms? (b) Why do these firms not replace all their older equipment with new equipment in the long run?

**special instructions: 4(a) Will the short-run marginal cost decrease or increase?