BHP Billiton is the world's largest mining firm. BHP expects to produce 1.50 billion pounds of copper next year, with a production cost of $0.80 per pound.
a. What will be BHP's operating profit from copper next year if the price of copper is $1.00, $1.25, or $1.50 per pound, and the firm plans to sell all of its copper next year at the going price?
b. What will be BHP's operating profit from copper next year if the firm enters into a contract to supply copper to end users at an average price of $1.20 per pound?
c. What will be BHP's operating profit from copper next year if copper prices are as in (a), and the firm enters into supply contracts as in (b) for only 50% of its total output?
d. For each of the situations described below, indicate which of the strategies (a), (b), and (c) might beoptimal.