Microeconomic Analysis: Installation of Solar Panels
ECON545-12413: Business Economics
May 27, 2014
The U.S. government has a plan intended to promote consumption of solar energy as an alternative source of energy (Hoover, et.al, 20012). A company known as1366 Technologies has received funding from the U.S. government to establish a plant for manufacturing of photovoltaic solar cells. A number of other solar manufacturers and power companies have received government funding ("under the stimulus funds from the 2009 American Recovery and reinvestment Act") to the tune of twelve billion dollars to establish sixteen solar projects (Glenn et.al, 2013: 374). The government subsidies are aimed at increasing the manufacture affordable solar panels for the consumers. The manufacturers of solar panel will apply the latest technology that will result to a significant reduction of production cost of solar panels. “The company plans to cast silicon wafers for solar panels directly from the molten output of industrial furnace” in order to save half of the silicon cost otherwise wasted when cutting the block of pure silicon with a saw (Glenn et.al, 2013: 375). Also, the company intends to coat the Wafers with materials that shall improve performance of the panel. The U.S. government intends to increase the global demand for solar energy hoping to increase U.S. market share for solar panels. However, many people are still doubtful of the effective of solar energy as an alternative source of energy whether at present or in the future.
Companies intend to charge high prices for products that are using new technology to manufacture affordable solar panels and recover the cost of investment in technology within a short period (Smock et.al, 2007). However, pricing of the products highly has challenges to the consumers since they cannot afford or they are not ready to pay higher prices and instead they opt for the alternative products in the market. For example, when solar companies set the price of solar panels very high most consumers have to use other sources of energy like hydroelectric power, coal and petroleum, among other sources (Donahue & Nye, 2004). The outcome of pricing the solar panels is that the market reduces and the company has to produce small units of solar panels. When the units produced reduces the price of goes high in order to cover the cost of production. As price continues to rise the demand continues to decline and sometimes the company is forced out of business.
Alternatively, the solar companies can increase the unit of solar panels they produce in order to enjoy economies of scale (Smock et.al, 2007). Increase in unit output will require 1366 technologies to reduce the selling price of the solar panels in order to allure consumers to shift to solar energy instead of the other sources of energy.
Those who advocates the manufacture and consumption of solar energy believe that something extra has to...