Final answer:
Rocket Energy Drink Company's quarter investment includes increased inventory of both sugar and energy drinks, as inventory is an asset and its increase is effectively an investment. International trade impacts supply and equilibrium prices, which is crucial for firms managing inventory investments. Option 1 is correct answer.
Step-by-step explanation:
The student's question relates to investment accounting for a company's increase in inventory. If the Rocket Energy Drink Company ends the quarter with increased inventory levels for both sugar and energy drinks, the investment for the quarter will include both the increased inventory of sugar and the increased inventory of energy drinks.
This is because in accounting, inventory is considered an asset, and any increase in inventory represents a company's investment in those assets, with the expectation that it will yield future benefits through sales.
In the context of international trade, purchasing sugar at a lower price in Brazil to sell at a higher price in the United States is a strategic move for profit-seeking firms. When trade is introduced between countries, it will affect supply and prices within each country, leading to a new equilibrium price where there is no further incentive to trade. As described, at this equilibrium price, the production and consumption levels adjust appropriately in Brazil and the United States, leading to the final market balance of sugar supply and demand.
It is essential to consider these market dynamics when evaluating the investments made by a company in their inventory, as they could impact the cost of goods and potential profitability. In summary, for Rocket Energy Drink Company, both increments in sugar and energy drinks should be included as part of the quarter's investment in inventory.