Answer to Question #48925 in Microeconomics for anand

Question

Source: Article form Live Mint published: Tue, Nov 27,2012
Questions:
1. What steps have been taken by government to overhaul coal sector? (5)
2. How effective coal regulator would be to avoid monopoly situation in coal industry in case pricing is kept out of its remit? (5)
3. How is price decided in coal industry where there is situation of near monopoly? (Explain with suitable diagram).

Answer 1

1. The government on Wednesday moved a step closer to restructure the coal sector with a proposal that could potentially benefit the power companies that have been strained by the scarcity and poor quality of coal supplied to them.
2. Analysts and senior coal industry executives are, however, not convinced about the effectiveness of a coal regulator, especially if pricing is kept out of its remit. For one, state-owned Coal India Ltd (CIL) is a near-monopoly producer of the fuel.
3. While a pass-through price structure will increase electricity tariffs for consumers, it could potentially help restore investor interest in the power sector. While Mehta said tariffs could rise 7-35 paise per unit, depending on the grade of coal used, the CIL official said that the increase will not be more than 4-5 paise per unit.