Subject: Economics / Accounting
(Joint Product Pricing) Each ton of ore mined from the ABC Mine produces 1 ounce of silver and 1 pound of lead. Marginal costs are $10 per ton of ore mined. The demand for silver is Ps = 11 — 0.00003Qs and the demand for lead is PL = 0.4 — 0.000005QL where Qs is ounces of silver and QL is pounds of lead. a. Calculate profit-maximizing sales quantities and prices for silver and lead. b. Now assume that wild speculation in the silver market has created a fivefold (or 500%) increase in silver demand. Calculate optimal sales quantities and prices for both silver and lead under these conditions.
(hint: apply the marginal principle to aggregated revenues)
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