Suppose RioTintoAlcan is considering the construction of a new aluminum smelter in Northern Quebec,the operation of which requires a great deal of electricity.Suppose also that the price of electricity is predicted to rise significantly in the near future.As a result,the firm decides to embark on new research and development which leads to the development of a new production technique that uses less electricity per tonne of aluminum produced.This is an example of
A)the marginal rate of substitution between factors.
B)innovation away from increases in factor prices.
C)short-run cost minimization.
D)short-run profit maximization.
E)long-run economies of scale.

Question

Quizplus · Accepted Answer

The firm's decision to embark on new research and development to develop a new production technique that uses less electricity per tonne of aluminum produced is an example of innovation away from increases in factor prices. This decision involves a long-term perspective, as the firm is looking to reduce its future costs and maintain competitiveness, rather than simply minimizing short-run costs or maximizing short-run profits.

Suppose RioTintoAlcan Is Considering the Construction of a New Aluminum