(8th edition) (the pearson series in economics) robert pindyck, daniel rubinfeld microecon 322

CHAPTER • Profit Maximization and Competitive Supply 297 cost increases slowly in response to increases in output, supply is relatively elastic; in this case, a small price increase induces firms to produce much more At one extreme is the case of perfectly inelastic supply, which arises when the industry’s plant and equipment are so fully utilized that greater output can be achieved only if new plants are built (as they will be in the long run) At the other extreme is the case of perfectly elastic supply, which arises when marginal cost is constant EX AMPLE THE SHORT-RUN WORLD SUPPLY OF COPPER In the short run, the shape of the market supply curve for a mineral such as copper depends on how the cost of mining varies within and among the world’s major producers Costs of mining, smelting, and refining copper differ because of differences in labor and transportation costs and because of differences in the copper content of the ore Table 8.1 summarizes some of the relevant cost and production data for the nine largest copperproducing nations.5 Remember that in the short run, because the costs of building mines, smelters, and refineries are taken as sunk, the marginal cost numbers in Table 8.1 reflect the costs of operating (but not building) these facilities These data can be used to plot the short-run world supply curve for copper It is a short-run curve because it takes the existing mines and refineries TABLE 8.1 COUNTRY Australia Canada Chile Indonesia Peru Poland Russia US Zambia as fixed Figure 8.10 shows how the curve is constructed for the nine countries listed in the table (The curve is incomplete because there are a few smaller and higher-cost producers that we have not included.) Note that the curve in Figure 8.10 is an approximation The marginal cost number for each country is an average for all copper producers in that country, and we are assuming that marginal cost and average cost are approximately the same In the United States, for example, some producers have a marginal cost greater than $1.70 and some less The lowest-cost copper is mined in Russia, where the marginal cost of refined copper is roughly $1.30 per pound The line segment labeled MCR represents the marginal cost curve for Russia The curve is horizontal until the total capacity for mining and refining copper in Russia is reached (That point THE WORLD COPPER INDUSTRY (2010) ANNUAL PRODUCTION (THOUSAND METRIC TONS) MARGINAL COST (DOLLARS PER POUND) 900 2.30 480 2.60 5,520 1.60 840 1.80 1285 1.70 430 2.40 750 1.30 1120 1.70 770 1.50 Data from U.S Geological Survey, Mineral Commodity Summaries, January 2011 (http:// minerals.usgs.gov/minerals/pubs/commodity/copper/mcs-2011-coppe.pdf) Our thanks to James Burrows of Charles River Associates, Inc., who was kind enough to provide data on marginal production cost Updated data and related information are available on the Web at: http://minerals.usgs.gov/minerals