Question

When considering the purchase of a large central system, such as power generation or computer networks, firms have to decide how big a system to acquire and whether, and, if so, how to charge the users for it after the purchase. Which is true?
a. If the firm charges depreciation to the users, the likely consequence is that the firm acquires less capacity than needed
b. If the firm charges users depreciation only, the likely consequence is that demand for resources equals capacity
c. If the firm charges nothing to the users, the likely consequence is that the firm will likely acquire more capacity than needed
d. If the firm charges the users the full cost, the likely consequence is demand for resources equals capacity

Answer 1

Answer:

b. if the firm charges the users depreciation only, the likely consequence is that demand for resources equals capacity.

Explanation:

When the large central system is purchased it will cost high and therefore depreciation expense will be higher for the large systems. The depreciation expense needs to be allocated equally to all the users of large central system because if the entire cost will be charges to a single user it will start creating loss to the company and demand be will less than the capacity. If only depreciation cost is charged the users will be allocated lesser costs and will result in higher profits.