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

CHAPTER 8 • 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 8. 5 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)

5

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: />