Asked by Vanessa McKeiver on Jul 17, 2024
Verified
The table below shows the quantity of gold bars (Qb) in thousands,the extraction cost for each thousand bars (in millions of dollars) ,and user cost of each thousand bars (in millions of dollars) facing the OZ Mining Company this year. Quantity of Gold Bars (in thousands) Extraction Cost (in millions of dollars) User Cost (in millions of dollars) 0$10$511552205325543055355\begin{array} { c c c } \begin{array} { c } \text { Quantity of Gold Bars } \\\text { (in thousands) }\\\hline\end{array} & \begin{array} { c } \text { Extraction Cost } \\\text { (in millions of dollars) }\\\hline\end{array} & \begin{array} { c } \text { User Cost } \\\text { (in millions of dollars) }\\\hline\end{array} \\0 & \$ 10 & \$ 5 \\1 & 15 & 5 \\2 & 20 & 5 \\3 & 25 & 5 \\4 & 30 & 5 \\5 & 35 & 5\end{array} Quantity of Gold Bars (in thousands) 012345 Extraction Cost (in millions of dollars) $101520253035 User Cost (in millions of dollars) $555555 Refer to the data.Suppose that a new government regulation is going to shut down OZ's mining operation one year from now.If the current price per bar of gold is $25,000,how many bars (in thousands) should OZ extract and sell this year?
A) 3.
B) 4.
C) 5.
D) As many as possible.
User Cost
The economic cost or expense of using a non-renewable resource or durable good, encompassing both the depreciation of the asset and the opportunity cost of not having the resource available for future use.
Extraction Cost
The expenses associated with removing natural resources from the earth, such as mining for minerals or drilling for oil.
Quantity of Gold Bars
The total number or amount of gold bars, often measured in terms of weight or units in a specific context.
- Determine the most efficient method of resource extraction for maximizing earnings, taking into account current and future price trends.
Verified Answer
PV
Paulyn ViloriaJul 23, 2024
Final Answer :
A
Explanation :
Given the current price per bar is $25,000, and each quantity represents thousands of bars, the revenue from selling each thousand bars is $25 million. The total cost (extraction cost + user cost) for each quantity level is $15M, $20M, $25M, $30M, $35M, and $40M respectively. The profit for each level can be calculated by subtracting the total cost from the revenue ($25M). The profit turns negative after extracting 3 thousand bars, making 3 the optimal quantity to extract and sell.
Learning Objectives
- Determine the most efficient method of resource extraction for maximizing earnings, taking into account current and future price trends.