Marginal Concepts in Managerial Economics - Case Study Example

Marginal Concepts Question Most of Britain’s coalmines have closed down. There are still large reserves of coal available. Under what circumstances would you envisage businesses opening up coalmines and exploiting these resources? Most of the coalmines have closed down possibly due to the rising cost of production. It is possible that the investors incur more costs in exploiting the coalmines compared to the revenue obtained from the sale of the extracted coal. Closing down of coalmines means that Britain probably considers importing coal economically cheaper. The best decision reached after analysis of the marginal concepts was the closing down of the mines (Chapman, Hopwood, and Shields, 1020). Logically, businesses can open up coalmines when situations in the market trends change. Change of these trends would include the rise of the prices of coal in the market. Rise of prices is a good motivation to open up coalmines because companies would make profits. This is because increase in prices of coal will give the company revenue that exceeds the production cost. As long as what they re getting after the sale of extracted coal exceeds the production cost, then the business is viable. Businesses interested in such a venture should consider the cost of production. More importantly, they should consider the marginal cost if at one point production is increased (Chapman, Hopwood, and Shields, 1022). Market demands and cost of increased production are the key determinants of whether a mine will increase production. After analysis of such concepts, businesses would consider opening up a coalmine if the demand of the product were high. Usually, a high demand would raise the prices. High prices of the product in the market would cater for the increased cost of production. In addition, it would be a viable venture for businesses to open up coalmines if they have an innovative technology that reduces the cost of production. Businesses should realize that any form of innovation that reduces the cost of production greatly affects the marginal cost at the increase of production. This would lead to higher revenue at a cost. Businesses would therefore be making profits. Businesses should engage in research and identify cheaper techniques or machinery that is more effective. One can foresee opening up of coalmines in Britain at a time when businesses are able to combat the challenge of environmental pollution brought about by the mining process. Increased pollution at the site and its environs leads to respiratory diseases. Until a business can address such effectively, it would be futile to open up a coalmine. Addressing the issue of minimizing pollution will definitely lead to higher costs of production. Businesses should analyze the cost of managing pollution and its adverse effects. One can envisage opening of coalmines in places that are relatively safer. Risky places will reduce the utility obtained from mining. If analysis of the grounds near mines indicate a high level of safety, then it is viable to open up a mine. Operating in a safe working environment gives an individual much more satisfaction and is a condition that greatly affects mines. In addition, one can foresee opening up the reserves that are relatively easily accessible. Ease in accessibility of coal in a mine reduces the time and cost taken in its extraction. Analysis of the available reserves can tell whether the coal is easily accessible or needs more time and advanced machinery. It is critical that a business analyzes the cost of restoring the mine into a safe condition. In all the above cases, a business must analyze all the marginal concepts. According to Ryan, an understanding of these concepts will determine whether the venture is a viable one (225). Analysis of all the marginal aspects ranging from all types of costs incurred to the revenue gained is very critical. It is only until one of the above factors brings about a marginal change and economic calculations predict profits that businesses can open up coalmines. Until then, Britain will probably opt to continue importing coal to produce other forms of energy. The availability of alternative energy sources will affect any venture since it will have a direct impact on the market and the price of coal. It is therefore foreseeable that opening of coalmines will only happen when conditions ensure that the marginal revenue is higher than the marginal cost. Question 2: Discuss the relevance of marginal concepts to the destruction of the rain forest. Destruction of rain forest is becoming a rampant practice in most of the regions today. Deforestation is a practice known to have devastating effects to man. Man experiences the adverse effects through climate changes. Climate changes affect other aspects of life especially agriculture. Nations should therefore be more analytical of the marginal concepts in addressing the issue. Cutting down of trees requires replanting. Replanted trees take time to grow and the aspect of time becomes very critical. Usually, man clears rain forests to gain access to more productive land when the land in current use becomes less fertile. Others cut down forests to access timber. An analysis of the importance of rain forests is very important. Nations should realize that without such forests, there is reduced rainfall and less water available. Cutting down the forests brings about drought in the subsequent seasons. Replanting forests is very costly and time consuming. Therefore, it is wise to analyze the marginal concepts. It is relatively cheaper for a nation to conserve the available rain forests. Logically, farmers intending to clear forests in search for more fertile land can choose to improve the soil fertility of the land currently in their possession. They can as well turn to other economic practices requiring less land (Gonsalves, International Potato Center and International Development Research Centre, Canada, 48). Failure to take this option that has relatively more utility will lead to adverse effects that are more expensive to address. Logically, drought will affect productivity of the land negatively. Therefore, such nations will spend more importing foodstuffs or lose the revenue gained from export of cash crops. After such a loss already, that nation will replant forests at a cost. Considering the forests will take more time to grow, it is wise for nations to avoid destroying forests. Analysis of the marginal concepts is very relevant because it will help a nation realize the value of conserving a forest rather than destroying it. Conserving the rain forests to understand why they need to make reconsiderations and cease from increased deforestation. Nations that lack the capacity and technology to replant forests should clearly avoid deforestation. In addition, nations depending solely on agriculture should realize the role rain forests play in their livelihoods. Question 3: How might an understanding of marginal concepts help to establish strategies to conserve as opposed to destroying natural resources? Understanding of the marginal concepts is a critical determinant of whether to conserve or destroy natural resources. Most of the natural resources are non-renewable and repeated exploitation leads to depletion of such resources from nature. Depletion of natural resources leaves man without a source to sustenance. With increasing population, more resources face exploitation each day to support the growing population. As the population trends predict further growth, the manner in which man utilizes natural resources becomes very critical (Gonsalves, International Potato Center, and International Development Research Centre, Canada, 49). However, understanding of marginal concepts can help man lay down viable strategies to conserve natural resources. Since depletion of the resources will leave man in desperation, it is practically wiser and cheaper to conserve the available resources. In addition, man should turn to renewable resources to replace the use of non-renewable. Conserving natural resources is a worthy cause with a higher level of marginal utility since it will give human beings a sense of security for the future. Diminishing resources will lead to a scramble for the remaining few resources and this is bound to make economic times harder for man since prices will go up. Conserving resources is logically at a lesser cost and has long-term positive effects. Turning to renewable resources has more utility too since these can be regenerated repeatedly. The current tough economic times are a result of the diminishing natural resources and conserving the remains of such is an economically wiser option. With the availability of natural resources, man can live the certainty of the future and conserving such is a worthy cause. Each resource conserved has great marginal utility. Understanding of the marginal concepts will motivate nations to lay down strategies of conserving the available resources. Such nations will make nations realize that it is worth investing in conservation since the benefits outweigh any gain from overutilization (Maher and Weil 171). Work Cited Chapman, Christopher, Hopwood, Antony, and Shields Michael. Handbook of management accounting research, Volume 2. Amsterdam:Elsevier, 2007. Print. Gonsalves, Julian, International Potato Center, and International Development Research Centre (Canada). Participatory Research and Development for Sustainable Agriculture and Natural Resource Management: Understanding participatory research and development. Ottawa: IDRC, 2005. Print. Ryan, Bob. Finance and Accounting for Business. Hampshire: Cengage Learning EMEA, 2004. Print. Weil, Roman and Maher, Michael. Handbook of Cost management. New Jersey: John Wiley and Sons, 2005. Print. Read More