Reference no: EM13243436
Barrick and Golds own the Bulyanhulu mine in Tanzania and theKarlgoolie mine in Australia. The attached table reportsinformation on the selling prices and costs for the two mines,Barrick's selling price of gold differs from the spot priceas some production is sold through a long time contract and alsoowing to the company's use of hedging. The "averagecash cost" includes operating cost, royalties, and taxes,while the "average cost" includes the cash cost as wellas amortization.
Bulyanhulu Kargoolie
2002 2003 2004 2004
Production (thousand ounces) 356 314 350 444
Selling Price ($ per ounce) 339 366 391 391
Average Cash Cost ($ per ounce) 198 246 284 234
Average Cost ($ per ounce) 300 369 384 278
a) Suppose the Bulyanhulu mine always producesat the scale where its marginal cost equals the selling price ofgold. Its marginal cost curve however, shifts with changes inelectricity process, wages and other factors. Using the data fromattached table illustrate the shifts in Bulyanhulu's marginalcost curve, the selling price, and profit maximizing scale ofproduction between 2002 and 2004. ( No need to drawtable shifts if able to explain the shifts)
b) In 2003,Barrick continued to produce from the Bulyanhulu mine even thoughthe selling price of gold $366 an per ounce was less than itsaverage production cost of $369 per ounce. Was this a mistake?Please explain why or why not.
c) UseBarrick's 2004 data to compare (i) short-run break evenconditions for Bulyanhulu and karlgoolie and (ii) the long-runbreak even conditions of the two mines.
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