Question: Each ton of ore mined from the Baby Doe Mine

Each ton of ore mined from the Baby Doe Mine in Leadville, Colorado, produces one ounce of silver and one pound of lead in a fixed 1:1 ratio. Marginal costs are $10 per ton of ore mined.
The demand and marginal revenue curves for silver are
PS = $11 - $0.00003QS
MRS = ∂TRS/∂QS = $11 - $0.00006QS
And the demand and marginal revenue curve for lead are
PL = $0.4 - $0.000005QL
MRL = ∂TRL/∂QL = $0.4 - $0.00001QL
Where QS is ounces of silver and QL is pounds of lead.
A. Calculate profit-maximizing sales quantities and prices for silver and lead.
B. Now assume that wild speculation in the silver market has created a fivefold (or 500%) increase in silver demand. Calculate optimal sales quantities and prices for both silver and lead under these conditions.



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  • CreatedFebruary 13, 2015
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