ABSTRACT
The effect on marginal costs of any expected changes in the capital cost of future vintages of capacity can only be studied via the optimization calculation. It is true that, other things being equal, a higher capital cost of future vintages will make for higher marginal costs in some of the intervening periods. In the absence of time, marginal cost is a simple concept. The time has been introduced it has become more complicated; for a unit change it is necessary to specify: the nature of the output, the timing of the change in it, and the timing of the decision to change it. When conditions are such that new capacity is acquired in all periods, discounted marginal cost can in fact be viewed as the effect on the present worth of system costs of bringing forward or postponing the acquisition of one unit of capacity for one period.
