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Revisiting operating cost in resource extraction industries

Maryke C. Rademeyer, Richard C.A. Minnitt and Rosemary M.S. Falcon

Resources Policy, 2018, vol. 58, issue C, 159-164

Abstract: A modified version of the Cobb-Douglas production function is proposed for simulating production costs in resource extraction models. The resulting average cost function is U-shaped with a wide bottom, and as such should be more representative of the economies of scale associated with bulk operations. It also possesses a minimum which is obtainable from the characteristics of the operations. The viability of the proposed cost function is demonstrated in a profit maximisation exercise constructed as a problem in optimal control, rendering results consistent with what could be seen in a real-world resource extraction operation with similar constraints.

Keywords: Mineral economics; Resource extraction; Operating cost; Cobb-Douglas function (search for similar items in EconPapers)
Date: 2018
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