Assume the firm produces electricity by burning coal

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Suppose your firm produces electricity by burning coal. Currently it buys central Appalachia 12,500 BTU per ton coal at the market price of $52 per ton. The Board of Directors has informed you that currently the average cost of producing that coal is only $35 per ton. They therefore are considering buying the mine because this would save them $17 per ton of coal burned. (Each 500 megawatt power plant your firm owns burns about 1.4 million tons of coal per year.) They have asked you whether this is a good idea. What do you say?

Reference no: EM13391645

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