Answer to Question #137077 in Economics for Libo

Question

Sea water contains around 300 grams of a certain metal per ton. By using the processing method A, 80% of the metal can be
recovered at a cost of S6_45 per metric tan of sea water pumped and processed. If process B is used, of the available metal is
recovered, at a cost of only S5_25 per metric tan of water pumped and processed. The twa processes are substantially equal as to
investment cost and time requirements. If the extracted metal can be sold far S3.70 per 100 gram, which processing method should
be used? At what selling price would the two processes be equally economical?
Show computations for each required item and indicate final answer's.

Answer 1

If method A is used, then the cost of producing 100 gram of metal is:

$6.45/(300×0.8)×100 = 2.69.$

If method B is used, then the cost of producing 100 gram of metal is:

$5.25/(300×0.8)×100 = 2.19.$

So, the method B is better.

At current price of 3.7 both processes are economical.