Economic Essay Example | Topics and Well Written Essays - 1250 words - 1

Economic - Essay Example This is shown in the following figure: Image Courtesy: Port Jackson Partners Limited, 2006 These top prices are backed up by a change in the iron ore cost curve in current years. Following figure proves it. Image Courtesy: Port Jackson Partners Limited, 2006 Australian Producers must take benefit of these high prices of iron ore and demand for the mineral Since Australia is the low cost manufacturer of iron ore exported to China, the operating costs to mine the mineral and transporting the ore to the ports are also low. The substructure and iron ore mining procedures in Australia is world class which has been proved by their position on the cost curve (Port Jackson Partners Limited, 2006) in the following figure: Image Courtesy: Port Jackson Partners Limited, 2006 For the past few years Western Australia has become one of the individual country to produce and export iron ore on a large scale. This has been possible due to the Chinese demand for iron ore [(Adams, (2004); Clements and Greig (1994); Clements et al. (1996); Layman (2004) and Ye (1998)]. The low cost of production has helped Australian manufacturers to be unambiguously placed to captivate chances produced by quick Asian demand growth. On the other hand, reacting promptly to shifts in demand is vital to pulling in the break. Any collapse to react to the market increases the threat that other producer countries, will set up low cost production installations in contest with Australia. The longer the postponement the bigger will be the threat. If Western Australia is to increase its supply of iron ore and reap the benefits of growing profit then it has to optimize its inputs. This can be achieved with the help of various combinations of its inputs. The following figure proves this: Source: Seattle education - Appendix to chapter eight In the above figure isoquant Q1 is for 500 units, Q2 is for 475 units and Q3 is for 400 units. Australia can take advantage of this opportunity The production facility ela borations and capital investments demanded to meet this upsurge in demand are enormous. This will have to be made in a much planned way and should be timely too. If Western Australia wants to hold on to its present contribution of sales, it will require committing in a further 300 million tonnes of yearly production capacity over the subsequent 20 years. The kind of commitment needed to attain this capacity is considerable advances to existent port and rail installations in addition to expansion of new mines and elaborations of existent mine sites. At a conventional standard cost of a$65 per tonne in capital expenses demanded for the extra capacity will amount to roughly a$20 billion in extra capital investments compulsory over the following 20 years (Port Jackson Partners Limited, 2006). Optimization of inputs M and L A firm’s production function represents the means by which the different resources of production can be combined to produce a particular quantity of output. In reality the production function denotes the different combination of raw materials like land; labor etc., to produce the maximum quantity of output for a given period. The state of technology is assumed to be fixed (Rowles, 2011). Let us now look at what happens when the inputs like Machinery (M) and labour (L) are optimized with the help of this figure: Figure: (Rowles, 2011). In the above figu