When deciding between self-sufficiency vs. specialization it is important to decide what is more important for the company. In this case, as a manager, is it more important for my employees to produce more financial statements or phone calls? The reason this must be decided is because it will influence the decision on which path to choose. Francis is able to produce two financial statements or 10 phone calls per hour. Phil is able to produce one financial statement or eight phone calls per hour. No matter how much time elapses Francis will be able to produce a larger volume than Phil is both tasked with the same responsibility (financial statements or phone calls). This is known as an absolute advantage according to O' Sullivan and Sheffrin (Economics, 2006) because Francis has the ability to produce a good at a lower absolute cost than Phil.
For calculations it is assumed there are eight hours in a standard day and there are five days in a work week.
To decide which work method would be best for Phil and Francis I first calculated self-sufficient rates per day. Splitting the day exactly in half and then multiplying each field by four allows the following:
Phil can produce 4 financial statements and 32 phone calls per day.
Francis is able to produce 8 financial statements and 40 phone calls per day.
Total they are able to produce 12 statements per day and 72 phone calls.
Knowing that Francis will produce more goods than Phil per hour regardless I have chosen it is best for the company that our financial statements out-weigh the number of phone calls taken. Francis will specialize in financial statements while Phil will be tasked with phone calls. Multiplying their respective hourly rates by eight we get the following:
Phil produces 64 phone calls per day
Francis creates 16 financial statements per day
Total they produce 64 phone calls and 16 financial statements. Comparing self-sufficiency against specialization, you can see that four more...
References: O 'Sullivan, A., & Sheffrin, S. M. (2006). Economics, Principles & Tools. Upper Saddle River: Pearson Prentice Hall.
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