MACROECONOMICS FACTORS; A CASE OF AERIS RESOURCES LIMITED
STUDENT NAME: RENU RANI
STUDENT ID: 13634670
SUBMITTED TO: MR GREGORY TROTMAN
TOC o “1-3” h z u Table of Contents
AERIS RESOURCES LIMITED……………………………………………………………………3
ANALYSIS OF COMPETITIVE ENVIRONMENT…………………………………………………4
FACTORS OF PRODUCTION…………………………………………………………………….5
FACTORS OF PRODUCTION FOR AERIS RESOURCES LIMITED…………………………5
FIXED AND VARIABLE FACTORS OF PRODUCTION…………………………………………6
OVERALL COST STRUCTURE AND SIZE OF AERIS RESOURCES LIMITED…………..7
THE AUSTRALIA ECONOMY…………………………………………………………………….7
MACROECONOMICS CONDITIONS FACED BY AERIS RESOURCES LIMITED……..9
POSITIVE AND NEGATIVE EXTERNALITIES……………………………………………..11
POSITIVE AND NEGATIVE EXTERNALITIES OF PRODUCTION OF COPPER………11
STRATEGIES IN PLACE FOR EXTERNALITIES………………………………………………….12
POSITIVE AND NEGATIVE EXTERNALITIES IN CONSUMPTION OF COPPER……13
STRATEGIES IN PLACE FOR EXTERNALITIES………………………………………………….13
SUSTAINABILITY PRACTICE OF AERIS RESOURCES LIMITED………………………….13
The aim of this business report is to explain various important concepts of micro and macroeconomics. Australian Stock Exchange is used to select firm for demonstrating the economic concepts. The selected firm is Aeris Resources Limited. Firstly, this report includes the microeconomics concepts of business environment including industry, competitors, market etc. Secondly, the concept of production costs and scale is discussed. The last part of report covers the macroeconomics concepts and sustainability practice. The practical implication is explained through Aeris Resources.
AERIS RESOURCES LIMITED:
Aeris resources limited is listed on Australian Securities Exchange under code AIS with its headquarter in fortitude valley, Brisbane, Australia. Aeris is publicly listed that gain revenue from exploration, production and sales of copper. The company is copper supplier, a convenience retailer along with exploration firm. The main operation of company is Tritton copper mines located in New South Wales, has administered production record in recent years. Company has various mines and processing plants at triton operation. Additional operations of firm are LarsensMine, North East Mine in north of Girilambone complex in New South Wales, Torren in South Australia and Vandon in QLD. Other operations of the business are in the industries of the Copper Ore Mining in Australia, Mineral Exploration in Australia, Metal and Mineral Wholesaling in Australia.
The company is operating all over Australia serving to manufacturing and construction business, government and other retailer with copper requirements. The company is posed as convenience retailer and prominent copper supplier for various purposes like electronics product, manufacturing, transportation vehicles and building construction etc. all over Australia. The main competitors are Independence Group N.L., Copper Strike Ltd., Emu N.L., Agency Group Australia Limited which are also functioning in Australia. The market cap of Aeris Resources limited is $47.64 million while Copper strike limited has $25.11 million and EMU N.L. is $5.77 million.
ANALYSIS OF COMPETITIVE ENVIRONMENT:
In Australia, due to challenging circumstances, some oligopolistic firms are forced to adopt competitive market structure due to massive business tackling. Many industries such as airways sector, financial services, food services, education sector, retail industry have been included in competitive environment structure. Many oligopolistic firms such as mining corporations, oil and gas companies are forced to compete through identification of customer’s satisfaction point, pricing strategies, additional services and efficient marketing mix have been implemented to create competitive advantage in the market. The mining industry in which Aeris Resources is operating under monopolistic competition market. The entry and exit in the market is not difficult but firms can differentiate their products. The demand curve faced by the firm is perfectly elastic, its means that the firm can sell their output at the conquer market price. The firm in the monopolistic competition can increase the price of the product without losing customer and can lower the price to gain more customers. The substitute of copper is aluminium, so demand curve faced by the firm is more elastic than monopoly.
FACTORS OF PRODUCTION:
Since 2000, on the basis of both volume and cost the productivity is declining in the mining industry. Australian economies, is facing the problem in the scarcity of resources required for production of mining. These resources are called as the factor of production which are required to produce goods and services. The three main factors are land, labour and capital. The last special form of labour is entrepreneurship which organize these three factors of production for goods and services. Land refer to the natural resources which are available to the mankind- both on the surface and under the surface such as soil, rivers, water, forests and climate etc. These resources can be renewable and non- renewable. The second factor is labour means human efforts physically and mentally to produce goods and services. Land and labour are called primary factor of production. Third is capital which include all man-made goods such as machinery, raw material, factories and equipment for production. Entrepreneur is person who maintains all these factors and take risk associated with these.
FACTORS OF PRODUCTION FOR AERIS RESOURCES LIMITED:
Aeris resources limited is operating in mining industry, require a huge amount of resources for production. The factors of production required by cooper mining industry are natural resources, labour, capital and entrepreneur. The end-product is sold by using the basis non- renewable resources such as minerals and metal ores. The businesses operating in the mining industry need to locate in mineral and metal ore rich areas to develop the final product. The second form of production is labour. For production of copper and copper products, all sorts of labour ranging from professional to small employees are required by Aeris. The third form of resources is capital, Aeris requires crushing and grinding equipment, reverberatory furnace, and refining machinery. In the end, enterprise in the business help to get all the resources together and work efficiently for production of last product.
FIXED VS VARIABLE FACTORS OF PRODUCTION
Production is result of combined factors of production. These may be either variable or fixed. Fixed factor is defined as, whose quantity cannot be changed in response to any change in the market conditions. Its quantity exists, either the output is more, less or zero. On the other hand, variable factor of production is one whose quantity may vary with the change in the output or market conditions. At zero level of production, there is zero quantity of factor of production.
FIXED AND VARIABLE FACTORS FOR AERIS RESOURCES LIMITED
Aeris Resources limited to produce its output require both fixed and variable factor of production. The third factor capital which include machines, building and plants are one-time investments and independent to the output of company in the short-run. However, in the long-run there is no fixed variable because a firm can buy new machines and equipment to increase its output. Natural resources are variable factors in short as well as long run as they are dependent on the production level. If a firm want to expand output, then it will require more amount of metal ores for the production. The second factor required by Aeris is labour which is also a variable factor because company can hire more employers to increase the production level. This is variable in short and long run. When firm is hiring number of labour, it should peruse the law of diminishing returns which states that in all productive processes, keeping all factors constant, adding one additional factor, at some point will yield lower incremental returns.
OVERALL COST STRUCTURE AND SIZE OF AERIS RESOURCES LIMITED
As discussed earlier, some factors of production are variable and some are fixed for Aeris Resources Limited. The set-up cost for the industry is very high due to capital costs. For Aeris resources Limited, capital resources are the main component of cost structure. In short turn, capital cost is fixed for the firm resulting in large amount of fixed costs. On the other hand, the cost of variable factors such as labour and land are variable and relatively less than the fixed costs of the firm. Thus, in the short turn, the major component of cost structure is incorporated fixed costs in the firm. However, in long run, if company want to set up another vantage, the fixed costs of firm will rise more than the variable costs because the equipment and machines are expensive.
The socially optimal size of the firm is that size for the company that give lower production cost for the output in given industry at given time. The factor affecting the optimal size of business are availability of workers and other resources. In a particular-industry, economies of scale must be considered, to determine the size of a firm. The mining industry in which Aeris is operating has high fixed costs. Thus, the optimal size of the Aeris Resources Limited is semi-sized organisation.
THE AUSTRALIA ECONOMY
Aeris Resources is operating in Australia economy. Since 1991, there is ordinary growth in GDP of Australia. Over the past years, Australian economy as compared to economies of other countries which have faced unemployment have not observed recession. The stable political environment in Australia supports transparent and well- established processes, competent government, a robust legal system and an independent bureaucracy. The strong rules and law in Australia protects right and help in minimizing the corruption in the field. The regulatory environment in Australia is most transparent and efficient in world and very supportive of entrepreneurship. Imports and exports in Australia include huge part of GDP display the open market strategy of the economy. GDP is measure of total market value of goods and services produced in the country and GDP of Australia is currently at 2.4% of growth rate. The mining sector include around 8.5% to Australia’s GDP and around 2%of the workforce to the employs. In recent years, the biggest impact of mining sector is on exports, which has made 50% of Australia total export while it was 10% of total output in 1901. The following graph show the growth rate of GDP in Australia.
Other important factors of economy are unemployment rate and inflation. According to trending economics macro models and analysts, inflation rate is expected to be 2.20% by the end which is projected to trend around 2.50% in2020.
In Australia, the unemployment rate averaged 6.88 percent fron 1978 until 2018, reaching high in December 1992 and in February 2008 recorded low.
The interest rate in Australia economy have been decreasing over the last years and current cash rate was observed 1.50%. The following graph shows the trend of cash rate.
Thus, all these figures and facts showed that the economy of Australia is politically stable and provide strong ground to operate business such as Aeris Resources limited.
MACROECONOMICS CONDITIONS FACED BY AERIS RESOURCES
Aeris Resources Limited is a mining industry for the production of copper which is used in various products. Copper has good heat and electricity conducting properties which is widely used in electrical wiring and electronic devices. These goods can be identified as normal goods whose quantity demands increase with increase in income of consumers. The copper products such as electronic devices are regarded as normal goods because as the income increase, the demand for electronic items also increases resulting increase in quantity demanded. In early 1990, Australia economy faces recession so the consumer income has reduced so the quantity demanded at that time for production of copper products has decreased.
Australia’s is one of the world’s mining countries. An increase in copper ore production has boost revenue of industry by 5.1% in 2013-2014. The mine production and refining production from the supply side of copper market leads to semi-finished products. The supply of mine production is smaller than refining production over last year due to better metal recycling.
The major resources required by Aeris Resources Limited are labour and land as it belong to copper mining. In the future, firm will face challenges in the metal ore rich location in QLD in the long run due to limited number of non-renewable resources. On the other side, in Australia economy the labour resources are abundant. This following chart represent the employment and worked hours. But the labour cost from the following chart represent that labour costs are now declining, which shows that Aeris Resources operating costs reduce due to declining labour costs. Due to limited number of resources in the Australia economy, company need to look at expansion in the future.
POSITIVE AND NEGATIVE EXTERNALITIES
Externality arises when a third party who is not involved directly in transaction experiences its side effects due to transaction between the buyer and seller. In this, when the third party enjoyed the benefit from the production and consumption of goods is known as positive externality. Negative externality exits when the third party who is not involved in transaction suffers in some sorts of cost.
POSITIVE AND NEGATIVE EXTERNALITIES IN PRODUCTION OF COPPER
Since Aeris Resources is a mining industry, it has a huge number of negative externalities. The foremost negative externality caused by mining is damage to environment. Mining of copper resulted production of toxic waste products and negative changes to the environment. It has bot acute and chronic effects on the water, geography biological life and vegetation in the surrounding areas. In the process of smelting, large volume of low concentration of sulphur dioxide is produced which is not further processed to remove the sulphur. This form acid rain by combining with the rain and can cause many damage to crops, building and trees. Acid mine drainage occurs when metal sulphides from the underground ore are exposed to natural elements. When sulphide ore oxidized it release sulfuric acid and free heavy metals which contaminate the surrounding areas. Another negative externality caused by copper mining is health risks. Copper exposure have impact on mine workers to great extent. Exposure of copper to high level can increase risk factor for chronic heart disease and lungs cancer.
Positive externalities in production of copper in mining industry has created many job opportunities and income and reduced unemployment. Mining activities have generated technical skills in the area that had constructed a better community and culture in mine region. Mining industry helps in the development of economy of the country.
STRATEGIES IN PLACE FOR EXTERNALITIES
As discussed above, many positive and negative externalities in the mining industry. These externalities can be overcome by using strategies. This can be done by introducing government legislations and regulations including taxation and emission trading. Acid mine drainage in copper mining has significant impact which can be reduced by cleaning up the mine sites. Mining process use large amount of energy such as diesel fuel which increase greenhouse gas emission, so by using electricity in grinding and refining, this can be reduced. Along with government, the firm like Aeris Resources have introduced pollution incident response management plan to manage the situation quickly and effectively. The employees of the firm played different roles and responsibilities to manage the environment. To support positive externality, there are government subsidies and compensations to promote the business and creation of jobs.
POSITIVE AND NEGATIVE EXTERNALITIES IN CONSUMPTION OF COPPER
Copper enter in the environment due to mining. The copper compounds break in the environment but the pure copper does not break and remains in our food, air, soil and water. So, we consume copper and its trace element is necessary for human health. While the over consumption of copper can cause eminent health problems such as irritation of nose, mouth and eyes. Apart from that its high intake can cause kidney and liver damage and even death. When it enters in the soil it attached with the minerals and organic matters and influence the proceeding of plants depending on the acidity of soil. On the other hand, positive externality of consumption of copper help to provide better climate because mining industry use renewable energy such as wind and sun which help to reduce carbon footprints. In addition, in the mined areas collecting mine water reduce soil erosion and pollution and surface water can be used for sanitation.
STRATEGIES IN PLACE FOR EXTERNALITIES
The consumption of copper has both positive and negative externalities. These negative externalities can be reduced by using a number of management strategies and development of technologies by the mining industries. Government can also minimize these by using some statistics and imposing taxes on the mining industries.
SUSTAINABILITY PRACTICE OF AERIS RESOURCES LIMITED
It is the responsibility of every business to maintain the environment and social foot print. In order to meet the expectations of society, Aeris Resources take responsibility to measure its sustainability. Some measures are formal environmental policy, integrated environmental management, health and safety for workers and many more. The company provide continue improvement programs to improve and develop environment system and procedures. To increase the profitability of business and social support of the society, these measures are important to develop better image.
This discussion depicts that macro and micro economics are the determinant for making major business decision and company’s operations. Every business operating in an economy is influenced by these factors. So, business cannot avoid these factor, if it does it increases the risk for the existence in the economy.
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