Abstract
If the marginal costs of production in particular plants is not equal, it is worthwhile shifting part of production from an electric power plant in which the marginal cost is higher to a plant in which it is lower, and this results in a reduced joint cost of production. If all plants have the same marginal costs of production, then there is a general marginal cost of production for electric power. This cost equals λ, and in this case, this is the economic sense of the Lagrange multiplier. This chapter presents a graphical interpretation of this problem for the case when there are only two electric power plants. The chapter also explains the principles of the neoclassical theory of risk. The enterprise that operates under conditions of uncertainty and whose risk is a random variable is guided in its operations by two criteria: (1) the amount of the expected profit and (2) the extent of possible fluctuations in profit.
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