Electricity Accounts for Almost 20% of the Cost of Making

question 3

Multiple Choice

Electricity accounts for almost 20% of the cost of making steel.A 10% increase in electricity prices results in steel firms decreasing production and thereby demanding 5% less electricity.Over many years,technological innovations can change the way steel firms make steel and reduce the industry's energy requirements.This suggests that the steel industry's short-run elasticity of demand for electricity is probably

• A) less than one in absolute terms in the short run.
• B) less than its long-run elasticity of demand for electricity.
• C) Both A and B above.
• D) Neither A nor B above.

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Definitions:

Incremental Cash Flow Principle

The concept that financial decisions should be made based on the changes in cash flows that the decisions will cause, ignoring cash flows that will not be affected.

Negative Effects

Adverse outcomes or impacts that result from an action, event, or policy.

Sunk Costs

Costs that have already been incurred and cannot be recovered, which should not affect future business decisions.

Capital Project

A long-term investment undertaken to build, add or improve on a capital asset such as buildings or infrastructure, with the expectation of enhancing value.