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Business Economics - Assignment 1

The skilled brain surgeon has an absolute advantage in typing speed but her opportunity cost of typing herself is high since it takes away from her time spent performing brain surgeries. While she is the fastest typist, her time is best spent on surgeries rather than typing, so it is recommended that she hire a secretary to improve work efficiency and save her time for surgeries.

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Sachin Thakur
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98 views

Business Economics - Assignment 1

The skilled brain surgeon has an absolute advantage in typing speed but her opportunity cost of typing herself is high since it takes away from her time spent performing brain surgeries. While she is the fastest typist, her time is best spent on surgeries rather than typing, so it is recommended that she hire a secretary to improve work efficiency and save her time for surgeries.

Uploaded by

Sachin Thakur
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Q1. Suppose that a skilled brain surgeon also happens to be the world’s fastest typist.

Should she do
her own typing or hire a secretary? Explain.
Answer:
In this situation, the skilled brain surgeon has an absolute advantage in typing, but her typing opportunity cost
is substantially high.
Though she is fastest in the typing but need time to her other activities too. So the suggestion is that she hire a secretary
for the better efficiency of the work. Which will also save the time.

Q2. Explain Sunk costs. What is the Sunk Cost fallacy?

Answer:

In business, the axiom that one has to "spend money to make money" is reflected in the phenomenon of the sunk cost.
However, there is also the axiom of “throwing good money after bad.” This is known as the sunk cost fallacy which is an
error in reasoning that the decision maker should avoid.

Q3. Explain

 Labour economies of scale

Answer:
As the scale of production is expanded their accrue many labour economies, like new inventions,
specialization, time saving production etc. A large firm employs large number of workers. Each
worker is given the kind of job he is fit for.

 Technical economies of scale


Answer:
Lower costs per unit of output explained by expansion of all factors of production. These are
labeled as 'technical' because they are based on the underlying production function rather than on
changes in input prices or the quality of inputs as scale increases.

 Managerial Economies of scale


Answer:
Managerial economies of scale occur when large firms can afford specialists. They more effectively
manage particular areas of the company. For example, a seasoned sales executive has the skill and
experience to take care of big orders. They demand a high salary, but they're worth it.

 Welfare economies of scale.


Answer:
In theory, internal economies of scale lead to lower average costs and reduced prices for
consumers in the long run. Lower prices cause an expansion of market demand and bring about an
improvement in consumer welfare shown by an increase in consumer surplus
Q4. Robinson Crusoe can gather 10 coconuts or catch 1 fish per hour. His friend Friday can
gather 30 coconuts or catch 2 fish per hour. What is Crusoe’s opportunity cost of catching 1
fish? What is Friday’s? Who has an absolute advantage in catching fish? Who has a
comparative advantage in catching fish?

Answer:

Crusoe's opportunity cost of catching on fish is 10 coconuts, since he can gather 10 coconuts in the
same amount of time it takes to catch one fish. Friday's opportunity cost of catching one fish is 15
coconuts, since he can gather 30 coconuts in the same amount of time it takes to catch two fish.
Friday has an absolute advantage in catching fish, he can catch two per hour, while Crusoe can
catch one one per hour. But Crusoe has a comparative advantage in catching fish, since his
opportunity cost of catching a fish is less than Friday's.

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