The Relationship Among

Market size, Fixed cost and Natural resource

Course: comm423

Professor: Jing Chen

Students: Yuting Zhao (230057923) Tingting Lv (230061520)

Due date: 2006-4-6

Contents:

Introduction ------Page 2

Mogao Cave ------Page 3

Loulan Kingdom------Page 5

Fiancial analysis------Page 6

Bibliography------Page 9

Introduction:

Since ancient times, people have fought for the limited resources on earth; the most recent fighting is probably the developed countries’ conflict over oil. The survival or extinction of one country depends on the capacity of its natural resources such as land, water, and minerals. Once a country has exhausted its natural resources, it will lose its ability to develop and will fall behind other countries; it may even move on a downward trend that threatens its survival. Thus, the stock of a country’s natural resources is important for this stock is the bedrock from which the country can feed its domestic population. In this paper, we will explore the relationship between market sizes, fixed cost and nature resources.

When the population of a country increases, the size of its domestic market will increase. The survival of the population depends on the country’s food supply. Food is the fixed cost that people have to expand on to maintain their lives. Human beings, as warm-blooded animals, need to consume more food than cold-blooded animals in order to support their body heat. Most food comes from natural resources such as land. Food and natural resources will be depleted more quickly when there a large population to feed than when there is only a small one to feed. We can use two ancient cities to explain the relationship between market size, fixed cost and natural resources.

The Mogao Caves:

The Mogao Cave one of the world’s cultural heritages; it was the center of the "Dunhuang" culture built sometime during the Qin Dynasty (1900 A.D), and was substantially expanded during the Sui Dynasty. According to Tang Dynasty records, a monk had witnessed onsite a vision of a thousand Buddhas under showers of golden rays. Thus inspired, he started the cave construction work that spanned ten dynasties. The Mogao Cave is commonly known as the Cave of a Thousand Buddhas. It is the best example of Buddhist cave art to be found in China. The geographic location of Mogao was at a strategic point along the Silk Route; in other words, it was at the crossroads of trade as well as religious, cultural and intellectual influences. Usually, a temple such as the Mogao Cave should be built in a region with abundant people because they would facilitate the worshipers on their pilgrimages. Also, the temple could get donations from faithful pilgrims. The Mogao Cave was not an exception; it was located closed to Dunhuang city which was oasis town at a crucial junction of the Silk Road, an ancient braid of caravan trails stretching for more than 7,000 kilometres from China to the Mediterranean and which served as a highway not just for merchandise, but also for ideas--religious, cultural and artistic. Silk Road travelers used to stop at Dunhuang to gather food and supplies before venturing further into the Gobi desert. By the 4th Century AD, the Silk Road had brought Dunhuang commercial prosperity and a growing Buddhist community as well as a huge population (about 38,335) that lived in the Dunhuang district.

As reported by Lionel Giles, we have the following census figures for the Dunhuang district

Year / 2 CE / 140 CE / 280 CE / 609 CE / 740 CE
households / 11,200 / 7,748 / 6,300 / 7,779 / 4,265
persons / 38,335 / 29,170 / na / na / 16,250

It is a bit difficult to generalize from data that are spread so widely apart, since events during a relatively short period could cause the population to fluctuate widely. Nevertheless, the overall trend seems to be a decline from the middle of the Han to the eve of the Tibetan conquest during the Tang period. One likely explanation for the decline would be that the re-routing of trade led to a decline in population. The other reason could likely be that the bulk of the Dunhuang population was engaged not in long-distance trade but in agriculture or in military operations which agricultural pursuits supported. The population (“market size”) increased, and the fixed cost or demand for food and water increased. In order to fulfill the need for food in that huge market, the limited land and natural resources were overused so that the fertile land became more and more lean. At the end of the Tang dynasty, the natural resources were used up and people had to leave their hometown and look for a new place in which to live.

The Loulan Kingdom:

Loulan, an ancient city, existed during 206 BC and disappeared around 220 AD. The city was located in Ruoqiang County, Xinjiang Uygur Autonomous Region. At the beginning of the last century, a Swedish explorer, in his exploration, accidentally discovered the city, which covers an area of about 100,000 square meters, buried in the desert. The discovery startled the world. The city is in the shape of an irregular square, the east city wall is 333 meters, the south wall 329 meters, and the west and north walls each 327 meters.

Loulan was a sprawling kingdom of 360,000 square kilometers whose domain bordered Dunhuang in the East and Niya city in the West. It had a population of over 14,000, and, as a key traffic hub on the ancient Silk Road, it served as an important trading center between China and the West, welcoming streams of camels loaded with exotic goods from many parts of the world. Many visitors and caravans were from the Mediterranean region. The discovery supplies precious materials for the study of the relationships between the empire located in the Central Plains and ancient kingdoms in the Western Regions, which covers the area of the present-day Xinjiang and parts of Central Asia. It is also of great importance to the study of the cultural exchanges between the East and the West. At that time, the central location of Loulan was surrounded by a rich water and forest network; uncontrolled felling of trees turned Loulan into a desert. Loulan, a lost kingdom in the Taklamakan desert, tells us that human beings can only survive in this world when their ways of life maintains the environmental equilibrium. A huge population needs more food to survive on and that could lead to an overuse of limited resources; the result could be the demise of a city. In the case of Loulan, flourishing human activities, environmental degradation, and wars seriously threatened Loulan’s existence. Resources can be divided into two categories: reproducible and non-reproducible. Resources such as electricity and food are reproducible; land, oil, minerals, and water are non-reproducible resources. So, the development of a country or a region can generate opportunities for people to have a higher standard of living; at the same time, these developments require the investment of huge volume of resources, both reproducible and non-reproducible. People should manage their need for non-reproducible resources so that they never break the balance of the environment they live in. Once the environment is seriously damaged, a country or a region will face the threat of perdition.

Financial analysis:

The level of fixed investment in a project (also known as fixed cost) depends on the expectation of the size of the market. If the investors predict that the market size is large, they will invest in the projects with high fixed cost to earn higher rates of return. Thus, for human beings, food equals fixed cost and energy equals the rate of return. If people want enough energy to maintain their life, they need to invest in the fixed cost---food.

From the above figure, we can see that with a higher fixed cost, the rate of return is higher, and with a lower fixed cost, the rate of return is lower. Thus, if people want more energy or a higher standard of living, they need more fixed cost, or more food or natural resources.

Food comes from nature resources such as water and land. The above two examples show that if the need for food increases as the population increases too quickly, the land or natural resources would be exhausted. With the rapid consumption of natural resources, the natural resources become more and more rare. And then people will fight for resources because the people who own the limited resources will survive. That is also the reason why every dynasty starts with a war and ends with a war. At the beginning of a dynasty, the population is small because of the wars, and the resources for the small population are abundant. A stable environment encourages people to multiply, so population will increase along with time. When the population reaches a peak point, the resources will be insufficient for feeding the people. So the limited natural resources such as the land become more and more rare. Thus, the conflict between people becomes more and more intense because they want to seize the limited resources. Although the dynast can use harsh laws to reduce the possibility of conflict, the laws cannot completely solve the problems. Thus, wars between people cannot be avoided. During war time, a portion of people will lose their lives, and a portion of people will remain. Then once again, the limited recourses will be enough for the remaining population, so war stops and society stabilizes again.

Bibliography

1.  “Dunhuang Ruin”, 2000, http://www.yutopian.com/travel/W/dh.html

2.  “Loulan: Vanished in Sand”, January 15, 2005
http://www.uyghuramerican.org/about_uyghurs/history/loulan_

3.  “Vanished in Sand/City Site in State of Loulan”
http://www.chinaculture.org/gb/en_artqa/2003-09/24/content_39404.htm

4.  “The Ancient State of Loulan”,
http://www.chinaculture.org/gb/en_curiosity/2003-12/03/content_44421.htm

5.  “Loulan – A Lost Kingdom in Taklamakan”
http://www.china.org.cn/english/travel/45241.htm

6.  Jing Chen. “An Analytical Theory of Project Investment: A Comparison with Real Option Theory”, 2006.

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