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ANEK [815]
3 years ago
6

In the short run, the price elasticity of the demand and supply of electricity can be very low.

Business
1 answer:
tatiyna3 years ago
5 0

Answer:

A. Revenue for the industry would increase

B. Short term incentive to shut down a power plant

Explanation:

The price elasticity of demand is a concept that determines the variability of the demand of a product or service relative to changes in its price. We know that the demand curve is a downward sloping curve so any changes in price will result in a lower level of demand. Exactly how much the demand will reduce in percentage terms relative to a percentage increase in price is calculated using the price elasticity of demand. If a demand is inelastic (i.e the price elasticity is low) for any percentage increase in price will lead a less than proportionate increase in demand. So for example, a 10% increase in price will lead to a less than 10% decrease in demand.

In our question, the first part indicates that a power plant has been shut down which decreases the supply. This is indicated by an inward shift of the supply curve to the left. This inward shift would cause the price to increase. However, since the price elasticity of demand is very low in the short run, the demand will increase by a LOWER percentage. Therefore overall revenues of the industry would increase. To show this as an example, lets assume that the price was $1 for which demand was 100 units. Existing revenue is therefore $100. Due to the shift in supply, prices increase upward by 10%. The new price would be $1.1. However since the demand is inelastic, the demand would reduce by less than 10% (lets assume by 5%). The new demand would then be 95 units. The new revenue would be $104.5. Therefore, we can see that industry revenue would increase.

The answer to option B is similar to above. The caveat is that since one company has many power plants, it controls a significant portion of total industry supply, making it a monopoly. In this scenario, its fair to assume that if the company reduces its supply, there is a negligible risk of a competitor firm increasing its supply to capture the market. So the company would have a short term incentive to shut down a plant every now and then to capitalize on the the higher revenue generated from the associated increase in price. Furthermore, shutting down a plant would save up on costs which would allow profits to increase even more in the short run

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Answer:

Explanation:

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1. Using current software:

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Answer:

Free Spirit Industries Corporation and LeBron Sports Equipment Corporation

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1b. LeBron Sports Equipment Corporation’s current ratio is , and its quick ratio is 1.6596 : 1 and 0.9294 : 1 respectively.

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Explanation:

a) Data:

Balance Sheet December 31st (Millions of dollars)

LeBron Sports Equipment Corporation   Free Spirit Industries Corporation

                             LeBron   Free Spirit                             LeBron   Free Spirit

Assets                                                        Liabilities

Current assets                                        Current liabilities

Cash                            $1,435      $922     Accounts payable         $0    $0

Accounts receivable      525         338      Accruals                       316      0

Inventories                   1,540         990      Notes payable          1,793   1,687

Total current assets $3,500   $2,250 Total current liabilities $2,109$1,687

Net fixed assets                                          Long-term bond      2,578 2,063

Net plant & equipment 2,750 2,750         Total debt             $4,687 $3,750

                                                                    Common equity

                                                                    Common stock     $1,016     $813

                                                                    Retained earnings   547       437

                                                            Total common equity $1,563  $1,250

Total assets      $6,250 $5,000 Total liabilities and equity$6,250 $5,000

b) Current Ratio and Quick Ratio:

Current Ratio = Current Assets/Current Liabilities

Quick Ratio = (Current Assets - Inventory)/Current Liabilities

1a. Free Spirit Industries Corporation’s current ratio is , and its quick ratio is

Current Ratio = $2,250 / $1,687 = 1.3337 : 1

Quick Ratio = ($2,250 - 990) / $1,687 = 0.7469 : 1

1b. LeBron Sports Equipment Corporation’s current ratio is , and its quick ratio is:

Current Ratio = $3,500 / $2,109 = 1.6596 : 1

Quick Ratio = $3,500 -1,540 / $2,109 = 0.9294 : 1

5 0
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