Question 5

A related Wall Street Journal article titled "The Boom in Battery Metals for EVs Is Turning to BustLinks to an external site." and dated February 19, 2024 details how leading battery producers, including Albemarle, Glencore, and BHP are scaling back investments and closing operations. This response comes as a result of significant declines in lithium and nickel prices, which have been attributed to a slowdown in the growth of EV sales. (Again, you do not need to read this article to answer this question; please rely on the information we've provided here.) The article explains: "Most large suppliers in the fledgling lithium industry have favored pausing coming projects over shutting down existing operations, bolstered by cash piles built up in recent years when prices for the commodity were surging. In the more-established nickel industry, some miners say they have been left with no choice but to close unprofitable mines that are struggling to compete with cheap Indonesian exports. The downturn has wiped out more than a fifth of Australia's mine supply, according to Benchmark Mineral Intelligence, which says there could be more casualties to come." For Question 5, make a graphical representation of the cost curves for battery metal mining firms as of 2022 when the prices of battery metals were high. Treat each mine as a distinct individual firm within the competitive battery metal market, operating with standard production technology (e.g., meaning that all mines use similar technology and thus have similar cost curves) and making non-differentiated product (e.g., metal produced by one mine is a commodity that is just as good as metal produced by other mines) A. Depict the average fixed costs (AFC), average variable costs (AVC), average total costs (ATC), and marginal costs (MC) for an individual battery metal mining firm in 2022. B. Label the initial price as P0, assuming that an individual firm is a price taker and that the price is high enough for the profit to be positive. C. Depict the profit-maximizing output in 2022 and label the output as q0. D. Graphically indicate the size of the (positive) profit for this firm in 2022 and label it as pie 0.

Question 6

Consider the state of battery metal mining firms in 2024. With the assumption that each firm's cost curves remain unchanged, depict a sample price in 2024 that would lead the mine to shut down in the short run. A. Using the graph from Question 5, label the new price in 2024 as P1 where the battery metal mining firm will shut down. B. Please explain why the firm would choose to shut down rather than to operate. If the firm shuts down, what will the firm's profit be equal to? C. What is the price at which the firm would be indifferent between shutting down or continuing to operate in the short run? Please show this price graphically, labeling it as PSD.