The Theory of Water and Utility Pricing - Global Drinking Water Management and Conservation - page 94

Fig. 5.3 Brackish and seawater desalination: Ramsey Price, Breakeven Price versus plant size

Table 5.5 summarizes the calculations of Shadow Ramsey Prices and Breakeven
Prices for different plant capacities. Plant sizes are ordered to increase from the
lowest plant capacity to the highest.
The objective of this subsection was to illustrate the computation of the Shadow
Ramsey Prices per unit and also the Breakeven Price per unit, where there are
economies of scale. We carried out the computations of the 36 reverse osmosis
treatment plants shown in Chap. 4 .
The data from Table 5.5 is finally plotted in the next three (Figs. 5.3 , 5.4 and

5.5 ). Figures 5.4 and 5.5 simply break up the capacity ranges; Fig. 5.4 is for
capacities between 0 and 3 m 3 and Fig. 5.5 is for capacities 3 70 m 3 .

To summarize, there are several pricing concepts: (a) short run marginal cost is

-

∂ VC, (where VC is Variable Cost) holding plant size constant, which is

essentially the energy cost of producing one more unit of water through reverse
osmosis; long run marginal cost or Ramsey Price is dTC/dQ, where capacity Q is
variable; Shadow Ramsey Price is

TC/ ∂

is a multiplier correcting for
market imperfections; and Breakeven cost is price where Total Revenue TR = TC,
or just the average total cost ATC = TC/Q.

.dTC/dQ, where

α α