Essay by bomondosUniversity, Master'sA+, November 2008

download word file, 48 pages 1.0

ABSTRACTThis paper presents a microeconomic assessment of the marble industry in Egypt. The marbleindustry is considered one of the oldest industries in the world. Historically, the industry movedfrom labor-intensive to capital-intensive with the advent of technological advancement,including development of automated production tools like cranes and diamond cutting wires. InEgypt, during the past 20 years, market entry into the industry was relatively high due to the highprofit margins achieved. In addition, there was, and still is, lack of effective governmentregulation especially related to the marble extraction process from the quarries. Currently, themarble industry in Egypt could be described as that of monopolistic competition, where productsare highly differentiated, nature of competition is capacity-constrained, and there are tangiblebarriers to entry. Moreover, barriers to entry are becoming more tangible as the needed capitalinvestment increased sharply with the devaluation of the Egyptian Pound. In order to study thedynamics of the industry more thoroughly, firm-specific analysis was conducted.

Results shownet ROI (return on invested capital) to be 12.24% using weighted-average opportunity cost ofcapital considerations, and pre-tax internal rate of return (IRR) as a direct measure ofprofitability estimated to be as high as 49.16%, while guaranteed yield using external rate ofreturn (ERR) calculations estimated at a minimum yield of 26.19%. On the other hand, the coststructure in the industry shows declining long run average cost C(Q) =γQ−0.55 with increasingreturns to scale in production of 2.2 given by an estimated Cobb Douglas production functionQ(K,L) = K0.89L1.33 . The marginal rate of technical substitution between labor and capitalresources was found to be the equivalent of $1000 of capital substitutable by 7.5 units ofunskilled labor. In general, market segmentation is expected to arise more deeply in the futureaccording to level of technology use by suppliers. In addition, high profitability is expected tolevel off when the supply of marble quarries...