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Calculating the joint product pricing

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Joint Product Pricing

Each ton of ore mined from the Baby Doe Mine in Leadville, Colorado, produces 1 ounce of silver and 1 pound of lead in a fixed 1:1 ratio. Marginal costs are $10 per ton of ore mined.

The demand and marginal revenue curves for silver are

PS = $11 - $0.00003QS

MRS = DTRS/DQS = $11 - $0.00006QS

and the demand and marginal revenue curve for lead are

PL = $0.4 - $0.000005QL

MRL = DTRL/DQL = $0.4 - $0.00001QL

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.

Reference no: EM13967469

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