Coal Mines Opening Issues - Case Study Example

Decision of the businesses opening up coal mines and exploiting these resources is an economic decision and it is the concept of margin that plays decisive role in it. Concept of margin with reference to production level refers that firm shall produce an additional unit only when the revenue generated by that additional unit is equal to additional cost incurred by that particular unit. This equating level of additional cost and additional revenue is the point where profit is maximum and fulfils the aim of every business to maximize profit.

If the productions are below or above the equating level of marginal cost and marginal cost, then the firm faces loss in short run. Hence, economically production in short run has to be confined within the range where two variables equate to get maximum profits.Opening up of coal mines and exploiting these resources will also be determined by this same factor. Coal mine exploration requires extensive capital investment and few firms in the world are capable of doing it. With this capital intensive investment, firms will be required to generate considerable revenue where it is able to equate two variables.

At the same time, exploiting these resources will increase supply that would take prices down and expectations to receive higher marginal revenue as compare to marginal cost remains vulnerable. Therefore, there can be two circumstances where the required level for two variables is achievable; first the demand for coal rises to the point that drives prices dramatically upward as happened in the case of oil. This rise in price would increase the marginal revenue for each additional ton of coal exploited as compare to cost of each additional ton of coal produced.

The other option to get marginal cost equal to marginal revenue is if the cost component shows some decrease. For instance, technology development that drives the cost down in areas such pilot project or of reclaiming the land and replanting it etc. Demand for coal is expected to peak in future by the time alternative energy resources share considerable contribution. Coal is used in many forms such as liquefied, gasified, solid and for various purposes such as fuel, electricity production, industrial process etc.

Exploration of coal reserves can also be adopted as when the alternative sources deplete, get more expensive or cost of importing them get higher than exploring coal. Therefore, if the exploration cost of coal gets considerably less than that of oil and alongside economic condition of for making this decision is met i.e. marginal cost equal to marginal revenue, then businesses will divert resources to coal exploration in Europe.