Question

In: Economics

Assume you have a limited stock of copper in a mine of 30 units. You want...

Assume you have a limited stock of copper in a mine of 30 units. You want to know how many units to extract this year (Q1) and how many to extract next year (Q2). The slope of the marginal benefit curve is: MB: y = -0.4Q + 12 and the slope of the marginal cost curve is: MC: y = 4 Use the formula PV(MB1 - MC1) = PV(MB2 - MC2) to calculate how many units of copper to extract this year and next year. The discount rate (r) is 9% (0.09). Report the optimal units of copper to extract this year (Q1), rounded to two (2) decimal places (XX.XX).

Solutions

Expert Solution

15.21 units of copper will be extracted this year and 14.79 units of copper will be extracted next year

Rahul Sunny answered 3 years ago
Next > < Previous

Related Solutions

You own a copper mine. The price of copper is currently €1.50 per pound. The mine...
You own a copper mine. The price of copper is currently €1.50 per pound. The mine produces 1 million pounds of copper per year and costs €2 million per year to operate. It has enough copper to operate for 100 years. Shutting the mine down would entail bringing the land up to environmental standards and is expected to cost €5 million. Reopening the mine once it is shut down would be an impossibility given current environmental standards. The price of...
Assume that you have 100 shares of XYZ stock which has a volatility of 30% and...
Assume that you have 100 shares of XYZ stock which has a volatility of 30% and a current stock price of £60 per share. XYZ pays no dividends. The risk-free interest rate is 3%. 4.1 Use the Black-Scholes option pricing model to value a six-month, at-themoney European put option on XYZ stock with the information as specified above. (10 %) 4.2 Given the information above, what action should you take to hedge using call options and put options, respectively? What...
Suppose you are advising a firm that operates a copper mine that faces the following types...
Suppose you are advising a firm that operates a copper mine that faces the following types of risks. The firm is asking for your opinion to buy or sell derivatives contracts to hedge its underlying operations or financial risk. For each risk type listed below, recommend a call or put option for the firm. Briefly justify your reasoning. A. Exposure to interest rates if the firm is planning to borrow $20 million 12 months from today. B.Exposure to an upcoming...
1. What would you multiply "grams of copper" by to get the units "atoms of copper"...
1. What would you multiply "grams of copper" by to get the units "atoms of copper" ? g Cu = atoms Cu (number) (unit) (number) (unit) (number) (unit) (number) (unit) 2. What would you multiply "atoms of calcium" by to get the units "grams of calcium" ? atoms Ca = g Ca (number) (unit) (number) (unit) (number) (unit) (number) (unit)
Case Study Owen Mills Limited We have all that you want! Owen Mills Limited began its...
Case Study Owen Mills Limited We have all that you want! Owen Mills Limited began its operations on Trumpet Land, a beautiful island in the Caribbean with a very diverse population in terms of age, gender, ethnicity, religion, disability, sexual orientation, education, and origin. In 1970, at the age of twenty-eight (28), Owen Mills a progressive thinking young man decided to start his own business.   His father had worked as a Manager at a large department store in the city...
Case Study Owen Mills Limited We have all that you want! Owen Mills Limited began its...
Case Study Owen Mills Limited We have all that you want! Owen Mills Limited began its operations on Trumpet Land, a beautiful island in the Caribbean with a very diverse population in terms of age, gender, ethnicity, religion, disability, sexual orientation, education, and origin. In 1970, at the age of twenty-eight (28), Owen Mills a progressive thinking young man decided to start his own business.   His father had worked as a Manager at a large department store in the city...
Case Study Owen Mills Limited We have all that you want! Owen Mills Limited began its...
Case Study Owen Mills Limited We have all that you want! Owen Mills Limited began its operations on Trumpet Land, a beautiful island in the Caribbean with a very diverse population in terms of age, gender, ethnicity, religion, disability, sexual orientation, education, and origin. In 1970, at the age of twenty-eight (28), Owen Mills a progressive thinking young man decided to start his own business.   His father had worked as a Manager at a large department store in the city...
Case Study Owen Mills Limited We have all that you want! Owen Mills Limited began its...
Case Study Owen Mills Limited We have all that you want! Owen Mills Limited began its operations on Trumpet Land, a beautiful island in the Caribbean with a very diverse population in terms of age, gender, ethnicity, religion, disability, sexual orientation, education, and origin. In 1970, at the age of twenty-eight (28), Owen Mills a progressive thinking young man decided to start his own business.   His father had worked as a Manager at a large department store in the city...
You have $12,500 you want to invest for the next 30 years. You are offered an...
You have $12,500 you want to invest for the next 30 years. You are offered an investment plan that will pay you 7 percent per year for the next 10 years and 9.5 percent per year for the last 20 years. How much will you have at the end of the 45 years? Please provide an Office Excel formula in your answer.
You have invested in a diamond mine in Nigeria. The mine is expected to generate nominal,...
You have invested in a diamond mine in Nigeria. The mine is expected to generate nominal, after-tax cash flow of $1 million per year in perpetuity at a risk-adjusted discount rate of 12.5% per year. Unfortunately, the Nigerian government requires that you leave each year's Cash flow in the Nigerian Treasury for five years after it is earned. The discount rate on the five-year Nigerian bonds is 10%. Assume end of year cash flows a. What is the value of...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT