For the following problems consider the following three firms: . XYZ mines copper, with fixed costs of $0.50/lb and variable cost of $0.40/lb. . Wirco produces wire. It buys copper and manufactures...

For the following problems consider the following three firms:

. XYZ mines copper, with fixed costs of $0.50/lb and variable cost of $0.40/lb.

. Wirco produces wire. It buys copper and manufactures wire. One pound of copper can be used to produce one unit of wire, which sells for the price of copper plus $5. Fixed cost per unit is $3 and noncopper variable cost is $1.50.

. Telco installs telecommunications equipment and uses copper wire from Wirco as an input. For planning purposes, Telco assigns a fixed revenue of $6.20 for each unit of wire it uses.

The 1-year forward price of copper is $1/lb. The 1-year continuously compounded interest rate is 6%. One-year option prices for copper are shown in the table below.¹⁷

In your answers, at a minimum consider copper prices in 1 year of $0.80, $0.90, $1.00, $1.10, and $1.20.