A Silver Mine Can Yield 10,000 Ounces of Silver at a Variable

question 91

Essay

A silver mine can yield 10,000 ounces of silver at a variable cost of $8 per ounce. The fixed costs of operating the mine are $10,000 per year. In half the years, silver can be sold for $12 per ounce; in the other years, silver can be sold for only $6 per ounce. Ignoring taxes, what is the average cash flow you will receive from the mine if it is always kept in operation and the silver is always sold in the year it is mined? What happens to the average cash flow from the mine if you can shut down the mine in years of low silver prices?

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Definitions:

Collective Action Problem

A situation where individuals in a group have incentives not to participate in an action that would benefit all members of the group.

Property Rights

Legal rights to possess, use, and dispose of assets or resources, which are crucial for efficient market operations and investment decisions.

Negotiations Fail

When negotiations fail, it means that parties involved in discussions cannot reach an agreement or compromise on specific issues.

Efficient Level

The optimal point of production or operation where a firm or an economy can produce goods at the lowest cost and with the best allocation of resources.