A mining company is offering to trade 7,250 tons of low-grade copper ore for 5,000 tons of high-grade copper ore. Assuming Coloma currently has 5,000 tons of high-grade ore, what should it do?
Low-Grade Copper Ore $571 per Ton
High-Grade Copper Ore $843 per Ton
Coloma Cooper Incorporated is able to produce $640 worth of copper from one ton of low-grade copper ore. Because of its higher copper content, Coloma can produce $940 worth of copper from one ton of high-grade copper ore.
Answer: Coloma should not trade. It should keep the high grade ore and refine it.
Total Benefits
No trade and refine high-grade ore (base case): 5,000 tons × $940 of copper/ton = $4,700,000
Trade high-grade for low-grade: 7,250 tons × $640 of copper/ton = $4,640,000
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