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Three managers of the Magic Potion Company are discussing
Three managers of the Magic Potion Company are discussing a possible increase in production. Each suggests a way to make this decision.
HARRY: We should examine whether our company’s productivity—gallons of potion per worker—would rise or fall.
RON: We should examine whether our average cost—cost per worker—would rise or fall.
HERMIONE: We should examine whether the extra revenue from selling the additional potion would be greater or smaller than the extra costs.
The company that you manage has invested $5 million
The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $3 million. If it would cost $1 million to finish development and make the product, should you go ahead and do so? What is the most that you should pay to complete development?
You win $100 in a basketball pool
You win $100 in a basketball pool.
You have a choice between spending the money now or putting it away for a year in a bank account that pays 5 percent interest.
What is the opportunity cost of spending the $100 now?