Continue with the Power Plant from the Previous Question,where Again

question 14

Multiple Choice

Continue with the power plant from the previous question,where again coal currently sells for $60 a ton but will sell for either $54 or $66 next month with equal probability. Now suppose coal can be stored for a month at the cost of $2 per ton. How would the new alternative of being able to buy coal at today's prices and store it affect the amount the power plant would be willing to pay for an option to buy coal next month at today's prices?

• A)Increase its willingness to pay for the option.
• B)Decrease its willingness to pay for the option.
• C)Lead it to never pay for the option.
• D)No effect. The new alternative of storing would never be chosen since it is worse than simply waiting and buying at next month's uncertain price.

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Definitions:

Trophic Level

The position an organism occupies in a food chain, based on its source of nutrition and energy.

Energy

Capacity to do work and bring about change; occurs in a variety of forms.

Atmosphere

The layers of gas surrounding a planet, held in place by gravity, and composed of various gases that protect and sustain life on Earth by absorbing ultraviolet solar radiation, warming the surface through heat retention, and reducing temperature extremes between day and night.

Photosynthesis

The process by which green plants and some other organisms use sunlight to synthesize foods from carbon dioxide and water. Photosynthesis in plants generally involves the green pigment chlorophyll and generates oxygen as a byproduct.