| Sumario: | The article presents the derivation and estimation of electric utility demand functions for equipment which determine the choice of technique. It considers the production constraints faced by the firm and then simulating its cost minimizing behaviour when facing these constraints. Electricity generation uses three main inputs, combining fuel and labor with machinery to produce electricity. In fact fuel and plant costs completely dominate production costs. As a result the labor input is ignored to concentrate on the interaction between fuel and capital costs. The capital equipment used is a differentiated commodity purchased from separate suppliers. The essential characteristics, for economic purposes, of a particular capital good are those that determine the associated short run production possibility sets. The derived demand for equipment, or choice of technique, depends on the circumstances of the utility. The private firms that supply electricity are monopolists, licensed by public regulatory commissions. The primary factor determining plant size and hence choice of technique is the absolute rate of growth of demand.
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