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The Rizzo water company owns land close to its water-purifying plant. The owner of an online
business, Ng.com, has offered the management of Rizzo water £3,000,000 per annum to lease the land
in order to construct a new order processing and distribution facility. Rizzo water could also use the
land to install 100 Wind Turbines to generate electricity. The cost of wind turbines and the hiring of
engineers to manage and service the generators would be £5,500,000 per annum. Rizzo water would
expect to receive £15,000,000 per annum should it sell the electricity generated directly to the national
grid.
(i) What are the explicit and implicit costs to the Rizzo water company of producing electricity?
(ii) Will Transitional water choose to generate electricity or rent the land for warehousing? Explain in detail.

Sagot :

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