Assume you own a copper mine. The mine has total known reserves of 500 (million metric tons). The market demand for the copper is estimated to be: P = -1.75Q + 1000 and the marginal cost curve is estimated to be: P = 1.25Q + 100. What is the efficient quantity of copper to extract if you need only consider the current period in your decision making? Assume you need to consider allocation of the mine’s resources across two periods of time—the present and the future. Assume the “future” period is 10 years from the present and you use a discount rate 7.5%. What would be the efficient (inter-temporal) allocation of the mine’s resources in each period? What would be the price in each period if demand is constant across time?

Assume you own a copper mine. The mine has total known reserves of 500 (million metric tons). The market demand for the copper is estimated to be: P = -1.75Q + 1000 and the marginal cost curve is estimated to be: P = 1.25Q + 100. What is the efficient quantity of copper to extract if you need only consider the current period in your decision making? Assume you need to consider allocation of the mine’s resources across two periods of time—the present and the future. Assume the “future” period is 10 years from the present and you use a discount rate 7.5%. What would be the efficient (inter-temporal) allocation of the mine’s resources in each period? What would be the price in each period if demand is constant across time?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 2.2CE

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