Economics Fundamentals Essay Example

In this assignment, the goal is to offer a discussion of economics fundamentals experienced within the work environment and how they correlate with the course readings thus far covered. My personal experience is in making regular purchase decisions for items that offer the most value in the long term for my department. In this discussion, I will highlight the decision-making process resulting in the choice of an appropriate building contract for the company. At the start, there were two building contract opportunities to be chosen from by the company. Building contract, A offered a job value of $200,000. It required 2000 resource hours to accomplish. Building contract B had a job value of $350,000 and equally required 2000 resource hours. The resulting decision-making situation required the application of opportunity cost as discussed by Baye and Prince (2014, p.5, para.5).

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Outwardly, it appeared that choosing building contract B was the better offer given the $150,000 upside it offered. According to Baye and Prince (2014, p.5, para.5), 'The opportunity cost of using a resource includes both explicit costs of the resource and the implicit cost of giving up the best alternative use of the resource.' This aspect became evident during the assessment of the opportunity cost associated with the decision. Through a closer look of both contracts, it was determined that building contract A offered the potential to extend for an extra year with an extra value of $1.5 million upon the completion of the performance criteria for phase one. On the contrary, building contract B did not offer this advantage. Upon further assessment of the market dynamics, it was determined that the long-term contract would yield more overall stability and profit, hence the reason to choose building contract A. Whereas every choice has a cost the best choice is only determinable through the consideration of several factors (Carbaugh, 2016, p.5, para.1).

While making this decision, we relied on the assessment of the lower-paying initial job which had the potential for longer-term profitability, stability, and sustainability. These attributes were considered to offer more value than the one-off higher paying building contract B. As such, the opportunity cost became the higher short-term revenue offered by building contract B. According to Carbaugh (2016, p.7, para.8), opportunity cost denotes the value of the best alternative that is sacrificed.

Conclusion

From this decision situation, it is evident that 'all choices have opportunity costs' (Carbaugh, 2016, p.11, para.7). Every decision made within a business environment is the result of a choice from two or more options. Each option presents its advantages and its limitations. Good management is reflected in the ability to pick on a choice which ensures the sustainability of the business.

References

Baye, M. R., & Prince, J. T. (2014). Managerial economics and business strategy (8th ed.). New York, NY: McGraw-Hill.

Carbaugh, R. (2016). Contemporary economics: an applications approach. Routledge.