3.12 The last of California’s operating gold mines closed after World War II because mining had become unprofitable when the price of gold was

$34.71 an ounce (about $446 in current dollars).

However, in 2012, the price of gold approached historic highs, hovering around $1,700 an ounce.

As a consequence, the first large-scale hard rock gold mining operation in more than half a century reopened, and several others were posed to reopen in 2013 (Don Thompson, “Gold Mining is Back in the Sierra Foothills,” Appeal-Democrat, December 17, 2012; www.macrotrends.net/1333/

gold-and-silver-prices-100-year-historical-chart, viewed June 22, 2013).

a. Show in a figure what this information implies about the shape of the gold extraction cost function.

b. Use the cost function you drew in part a to show how an increase in the market price of gold affects the amount of gold that a competitive firm extracts. Show the change in the firm’s equilibrium profit.