Marginal Concept - Case Study Example

Marginal Concept Question Most of Europe’s coal mines initially closed because they were not profitable and it was cheaper to for industries to use coal imported from countries like Poland. The coal industry was nationalized and the government subsidized it since the major coal buyers such as power stations were also owned by the government (Dubinski 1). The cost of running the coal industry was too high yet its substitutes such as oil and gas were cheaper to use. Fact is the marginal cost of burning coal in efficient ways that curb pollution is higher than burning alternative fuels such as gas and oil.

The only circumstances under which coal mines would reopen is if the marginal cost of producing alternative oils would rise and the marginal revenues of producing coal would increase. Oil is a non-renewable and the wells will be depleted in future. Oil sands have large oil reserves but are generally inaccessible. Extraction would require very expensive technology and this would in turn increase oil prices. Gas prices are already on the rise due to the increasing cost of oil production and fluctuating prices.

Not to mention that the constant war in the Middle East negatively affect the oil prices. If the cost of producing oil and gas rise significantly above the price of producing coal, coal mines would reopen. In addition, technological advances in clean and environmentally friendly coal production which are significantly cheaper would make coal production more economically viable. Therefore, the marginal revenues from oil and gas must decrease below the revenues that would make coal mining more economically viable.

Question 2 Rain forests are generally now threatened by climate change, which saw the worst draught ever recorded in the Amazon, which lasted from two thousand and five to two thousand and ten.Leaf litter and dead trees during draught increase the risk of forest fires that are often set by ranchers, land developers and plantation owners. Destruction of the rain forests has mainly taken place to give way to large farms, ranching, logging or extraction of minerals and energy. Where rainforests have been cleared to allow for mineral extractions, there is definitely more revenue obtained from mining than a beautiful rain forest view.

Minerals such as diamonds are generally very expensive and are considered luxury items. The demand for minerals is very high and where the cost of extracting them is low enough to allow for high returns, then the trees have lower value than the minerals. Therefore, using margin concepts in this situation is relevant as an analyst can argue that extracting minerals for sale brings more revenue from the piece of land where the rain forest grows. In any case, the trees that are cut down to allow for extraction of minerals can be sold off to industries which use them to produce fuel and also earn more revenue (Revington 5).

When the mining process is completed, the trees can be grown back to reclaim the land. However, where the extraction process is too costly to make any significant revenues, then mining will not take place. Where the trees are cut down for industrial purposes, If the marginal cost of cutting down more trees is higher than the marginal revenue from selling them, then cutting down the trees is not economically viable (Aashwin). The marginal revenue must be greater than the marginal costs to make it profitable to cut down trees.

Rainforests are as source of nuts, oil producing plants, medicinal plants and also fruits. They have more economical value than when the trees are cut down. Statistics show that creating a value chain for harvested medicinal and oil producing plants from the rainforests could have more value than cutting down the trees. Question 3 The constant crude oil price fluctuations affect general business cycles. It has also being cited as among the major reason for the global recession. An increase in oil prices leads to an increase in many other costs such as production costs, transportation costa, the cost of goods and services and this increase in costs lead to higher rates of inflation.

Governments tighten monetary policies to curb inflation. Tightening these policies is one of the strategies used to reduce inflation. Volatile crude oil prices lead to increased marginal costs for organizations and companies. The first strategy to manage price volatily is enforcing transparency related to disclosures of physical demand and supply of crude oil. Another strategy is strictly controlling prices and introducing trade limits, this will in effect promote conservation of the natural resource.

The last strategy is marginal cost and marginal revenue analysis of alternative sources of energy to conserve crude oil reserves. Cheaper alternatives can be substituted to save natural resources from destruction. References Armitage Derek. (2004). Nature-Society Dynamics, Policy Narratives and Ecosystem Management: Integrating Perspective on Upland Change and complexity in Central Sulawesi, Indonesia . Ecosystems 7: 717-728. Aashwin. Operating at the Margin. Biz/Ed, 2006. Retrieved from: http://www.bized.co.

uk/current/mind/2005_6/060206.htm Dubinski Josef. Outlook for the European coal sector and benefits from the RFCS. Central Mining Institute, 2012. Glantz, M. H., and N. S. Orlovsky. Desertification: A review of the concept. Desertification Control Bulletin 9: 15-22, 1983. Revington John. Stopping Tropical Deforestation. New Renaissance, Vol. 3, Number 3, 2001. Stiglitz Joseph. A Neo-classical Analysis of the Economics of Natural Resources. Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER), 1980.