How might higher energy prices affect ABC's costs?

• A. Higher energy prices do not affect costs because the energy is a fixed input.
• B. Higher energy prices increase operating costs, but the room-temperature process may still be cheaper than high-temperature alternatives.
• C. Higher energy prices always reduce production costs due to efficiency gains.
• D. Higher energy prices will reduce demand for products, lowering costs.

Answer: (B)

Higher energy prices push up operating costs because energy is a direct cost of producing goods. If ABC can use a room-temperature process that requires far less energy than a high-temperature method, the relative cost of that lower-energy option may still be cheaper even with higher energy prices. In other words, the total cost depends on how energy-intensive each option is; higher prices raise costs, but choosing the less energy-demanding process can keep costs down compared with a more energy-hungry alternative.