Barrick Golds two most productive gold mines are Cortez and Goldstrike in Nevada, USA. Table 4.7 reports the selling prices and costs for the two mines. The average cash cost includes operating cost, royalties, and taxes, while the average cost includes the cash cost as well as amortization.

(a)Suppose that Barrick Gold operates each mine at the scale where the (upward-sloping) marginal cost equals the price of gold. The marginal cost curve shifts with past production, the prices of inputs, and production technology. Using the data from Table 4.7, illustrate the shifts in Goldstrikes marginal cost curve, selling price, and profit-maximizing scale of production between 2010 and 2012. (Hint: Barrick Gold reports only one point on each marginal cost curve. You are free to assume any other data necessary to draw the figures.)

(b)Use Barricks 2012 data to compare the (i) short-run break-even conditions for Cortez and Goldstrike; and (ii) the long-run break-even conditions for the two mines.

(c)If the price of gold falls to $600 per ounce, how should Barrick adjust production at the two mines?

Table 4.7 Barrick Gold Cortez Goldstrike 2010 2011 2012 2010 2011 2012 1,141 1,421 1,370 1,239 1,088 1,174 1,228 1,578 1,669 1,228 1,578 1,669 Production (thousand ounces) Selling price ($ per ounce) Average cash cost ($ per ounce) Average cost ($ per ounce) 244 245 282 475 511 541 452 426 503 569 593 629 Table 4.7 Barrick Gold Cortez Goldstrike 2010 2011 2012 2010 2011 2012 1,141 1,421 1,370 1,239 1,088 1,174 1,228 1,578 1,669 1,228 1,578 1,669 Production (thousand ounces) Selling price ($ per ounce) Average cash cost ($ per ounce) Average cost ($ per ounce) 244 245 282 475 511 541 452 426 503 569 593 629