Deforestation and Marginal Cost - Case Study Example

World has been at the alarming condition of land deforestation. Deforestation is done either by clearing the entire land or degrading it. Main reasons cited for the purpose are cultivation, agriculture, collection of fuel wood, logging, mining, industrial development, large dams and tourism etc. All businesses conducting these activities provide reasons that apparently justify and for the short run only. For instance, commercial companies conduct logging for their need of timber and defend themselves with responses that logging is conducted with selective process and the entire forest is not cleaned up which ensure that forest re-grows.

However, here the marginal cost incurred is much higher than marginal revenue. Firms include only the cost of logs used. And it does not account for cost of all trees cut down and rejected for not meet specification. The other cost that is involved and not accounted for includes: Cost of regeneration of the specific part which then takes hundreds of years, Cost of damages to soil component of the area due to method of taking heavy machinery to the forest land, Cost of damages due to careless means of taking desired log off the forest causing further damage to other standing trees, and road developed by this off-loading of logs are then made permanent road-ways by farmers of near-by areas etc.

leaves land no more feasible for forest re-growth. Firms who undertakes this activity does not consider these damages as their cost. Their profitability is based on marginal revenue from doing business with the products of these logs such as furniture incremental to the cost of used logs only. Similarly, other activities such as cleaning land for agriculture practices bring benefit of agriculturist for certain period of time. Such land initially provides best quality agricultural output; quality decreases overtime and after certain period land remains no more productive.

This left out land also does not remains feasible for forest growth and that part of earth turns barren. It takes years for land to get feasible again for agricultural process or forestation. Hence, the actual marginal cost of deforestation; the land occupied by each tree is much higher than agricultural output produced. Deforestation by mining companies has also been destructive for rain forest. Mining companies turn the land upward down for exploration , Though they account for replanting cost as well but the fact remains that regeneration is the natural process that takes years and no marginal revenue can takes the firm into profit zone after accounting all these actual cost.

Hence, the marginal revenue of every unit produced in each of mentioned activities is much lower than the actual marginal cost incurred by these activities. Accounting for all these marginal costs which is much higher than capital intensive cost component of exploration would leave firms with no economic justification of profit.