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.
Question 2
Global budgets coupled with price ceilings can control total spending as long as
a. the price ceilings are negotiated in good faith.
b. utilization of services does not increase significantly.
c. providers cooperate by only providing medically-necessary services.
d. patients are required to pay some of the expenses out-of-pocket.
e. none of the above. Global budgets can never work to control spending.
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