Opportunity Cost

Essay by OhCollegeGuy74University, Bachelor'sA, November 2007

download word file, 2 pages 3.0

As a manager of a financial planning business you have two financial planners, Phil and Francis. In an hour, Phil can produce either one financial statement or answer 8 phone calls, while Francis can either produce 4 financial statements or answer 10 phone calls. Does either person have an absolute advantage in producing both products? Should these two planners be self-sufficient (each producing statements and answering phones) or specialize? Be sure to show your work.

In this assignment, I will establish whether or not my financial planners Francis and Phil should be specialized or self sufficient. I will also discuss the opportunity cost of each, absolute and comparative advantage. According to the information provided in the scenario of the assignment, Phil is capable of producing eight (8) telephone calls or one (1) financial statement within a sixty minute period. My other financial planner, Francis is capable of producing ten (10) telephone calls or four (4) financial statements in a sixty minute period as well.

When figured into a work day consisting of eight (8) hours, Phil produces sixty-four (64) phone calls or eight (8) financial statements. Francis exceeds these figures by producing eighty (80) telephone calls or thirty-two (32) financial statements, giving her what I believe to be an absolute advantage in turning out either good. Production of the financial statements is four times higher by Francis compared to Phil. In addition Francis also makes sixteen (16) more telephone calls than Phil.

Specialization will increase the entire amount of output (O'Sullivan & Sheffrin, 2006). It is my thoughts that Phil needs to be specializing in making telephone calls and Francis needs to be specializing in producing financial statements. On the other hand, if I were to make this decision, I would be losing sixteen...