Suppose Coal Sells for $50 Per Ton and Can Be

question 58

Essay

Suppose coal sells for $50 per ton and can be mined at a constant marginal cost of $20 per ton.Forecasters predict that the price of coal next year will be $55.If your marginal cost next year will still be $20 and the interest rate is 10%,do you sell coal today?

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Definitions:

Diminishing Returns

A principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other inputs remain constant.

Fixed Inputs

Resources used in production that cannot be easily increased or decreased in the short term, such as buildings or machinery.

Variable Inputs

Resources or factors of production whose quantity can be changed in the short term to influence output.

Fixed

Fixed typically refers to costs or assets that do not change in the short term, regardless of the level of output or activity.