Answer to Question #112402 in Microeconomics for Affan Javed

Question

Your company makes copper pipes. Over the years, you have collected a large inventory of raw
copper. The production process involves melting the copper and shaping it into pipes. You also
have a large stockpile of pennies. Suppose the price of copper rises so much that the copper in
the penny becomes worth more than one cent. Should you melt down your pennies?

Answer 1

It is economically wise to melt down the pennies for there is an additional added value to the pennies that will generate revenue. It is very unlikely to expect the future inflation and increases of the value of the coin and this could be the opportunity to dispose of the stockpile of copper into the market. Other overhead costs are incurred by stockpiling such as storage fees and security expenses that could be avoided by melting down the stockpiles. There are legal matters that govern and restrict the melting of pennies that should be first considered and adhered to. It is illegal to melt the pennies in the United States but there are possibilities to legalize the activity. However, economic environments are dynamic and there is the likelihood of an increase in the value of copper than the face value of penny by more than one cent and that could look more lucrative than the current one-cent increase.