RETURNS TO SCALE, ADJUSTMENT COSTS AND THE OPTIMAL INVESTMENT OF THE MINING FIRM

This paper analyses the optimal investment programme of a competitive mining firm for two different technologies and capital adjustment costs. In the.first part the case of a variable proportions technology with decreasing returns to scale is studied, and it is concluded that under the assumption of a constant mineral price, a first stage in the exploitation period of the deposit will occur in which capital stock is increasing. In the second part, the optimal investment programme is determined when there are constant returns to scale and Hotelling's rule governs the dynamics of the mineral price.