Electricity accounts for almost20% of the production costs ofaluminum smelters.A 10% increase in the price ofelectricity leads the smelters toreduce their production, thuslowering their demand forelectricity by 5%. The adoption ofrecent technological innovationswould allow aluminum plants touse less electricity in the future.This suggests that the demandfor electricity by aluminumsmelters in the short term is(a) inelastic.(b) less elastic than their demandfor electricity in the long run.(c) Both of the above answers arecorrect.(d) None of the above answersare correct.

Electricity accounts for almost 20% of the production costs of aluminum smelters. A 10% increase in the price of electricity leads the smelters to reduce their production, thus lowering their demand for electricity by 5%. The adoption of

Electricity accounts for almost 20% of the production costs of aluminum smelters. A 10% increase in the price of electricity leads the smelters to reduce their production, thus lowering their demand for electricity by 5%. The adoption of

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 4MC

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Question

Electricity accounts for almost
20% of the production costs of
aluminum smelters.
A 10% increase in the price of
electricity leads the smelters to
reduce their production, thus
lowering their demand for
electricity by 5%. The adoption of
recent technological innovations
would allow aluminum plants to
use less electricity in the future.
This suggests that the demand
for electricity by aluminum
smelters in the short term is
(a) inelastic.
(b) less elastic than their demand
for electricity in the long run.
(c) Both of the above answers are
correct.
(d) None of the above answers
are correct.

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