An article on bloomberg.com discussed the situation at the mining firm BHP Billiton Ltd., which is headquartered in Australia: “The fixed element of mining costs doesn’t change much, regardless of how many tons are being produced, so the declines in output . . . pushed up the average [cost per ton].”
a. What does the article mean by the “fixed element of mining cost”? Give an example.
b. Will a reduction in a firm’s output always result in an increase in the firm’s average total cost of production? Use a graph to illustrate your answer.