3.2 A mining company’s land concession in Angola incorporates five major mines that extract copper. The productivity of each mine is as follows

Assume that each mine is the identical size and that the variable costs of mining copper are $18 million per year per mine. The variable costs cover labour and machinery time, which is rented. The mining company must decide each year how many mines it should operate. In 2014, the average price of copper was $3.50 per pound. How many mines did the company operate? Explain. By 2015, the price of copper had fallen to $2.00 per pound. How will this price decrease change the mining company’s decision? How will it affect her demand for labour? How will it affect the value of the mining company’s land concession?

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Annual Yield Pounds Mine 1 18 million Mine 2 11 million Mine 3 8 million Mine 4 5 million Mine 5 4 million