1) Draw the marginal cost curve (MC) and the average total cost (ATC) curve for a Type 1 mine. Your curves should be as neat as possible, but they do not have to be absolutely, perfectly precise. You should, however, clearly label each curve.
MC would be equal to AVC for every Type 1 mine firm.
2) Draw the short-run industry supply curve for the world copper market. Please indicate how much copper would be supplied in a given month if the price of copper were (a) $1,500 per ton; (b) $1,000 per ton; (c) $500 per ton; and (d) $200 per ton.
To graph the supply curve, the marginal cost is used since in the short term the supply decision depends on his. The marginal costs – which are equal to their average variable costs – were individually calcuated for the Type 1 & 2 firms, and total capacities for both types of firms were calculated. These firms, as a total under their type, were graphed according to their MC and cumulative capacities.
The quantity supplied for prices P(a), P(b), P(c), P(d) were calculated based on the MC’s of each type – if the price is below the MC of the firm, the firm would stop its production. The quantities to be supplied for each price level is like below:
P(a) = 7 mn $
P(b) = 4 mn type 2 + 3 mn type 1 = 7mn $
P(c) = 4 mn type 2 + 0 mn type 1 = 4 mn $
P(d) = 0 mn $
3) Suppose that the world demand curve for copper is expected to be given by the formula D(P) = 6,700,000, – 1,000P, where D(P) denotes the quantity of copper demanded (measured in tons per month) when the market price is P (measured in dollars per ton). Given the supply curve you constructed, what would we expect to be the market equilibrium price for copper? How much copper will be bought and sold at this equilibrium price? How much copper will be produced by all of the Type 1 mines together? How much copper will be produced by all of the Type 2 mines together?
We populated the demand for a range of P, substituting the values to...
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