Question: The world price of zinc has increased to the point where "moth balled" zinc mines in east Tennessee have been reopened because of their potential profitability.
(a) What is the estimated annual profit for a mine producing 20,000 tons per year (which is at 100% capacity) when zinc sells for $1.00 per pound? There are variable costs of $20 million at 100% capacity and fixed costs of $17 million per year.
(b) If production is only 17,000 tons per year, will the mine be profitable?