Reference no: EM133478554

Case: Australia is an exporting country of gas. Gas exporters are now subject to a domestic price cap as part of a multi-pronged strategy to force down the price of electricity price on Australia's east coast. Domestic gas has two major consumers: domestic consumers and businesses. If Australia is going to be a country that makes things, cheap energy is critical for manufacturers. Meanwhile, domestic consumers are facing a cost of living crisis.

Australian Workers Union (AWU) noted that gas prices have historically operated around $8 to $10 a gigajoule. The cost of production for gas companies has not increased.

Meanwhile gas companies have been heavily profiting from sky-high prices triggered by the war in Ukraine.

Origin Energy in August 2022 told its shareholders that their breakeven price (i.e. P = ATC) is $3.50 a gigajoule. ABC is aware of a NSW steelmaker has been offered gas for $35 a gigajoule, 10 times their breakeven price.
Sources: ABC news 29/11/2022 and Treasury 22/12/2022

REQUIRED:
Using the above case study, answer the questions below.

Question 1. Consider the scenario of Origin Energy.
a) What type of profits are they earning? Explain.

b) Calculate the per unit profit of Origin Energy.

c) Discuss the impact of Origin Energy's and other electricity and gas companies' conduct on consumer surplus (household and businesses) and the economy. Consider the impact of not just gas but also electricity.