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Economic Assignment - Essay Example

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The idea here is to calculate the comparative advantage of both Phil and Francis in accomplishing each of the above tasks. If Phil has a comparative advantage of producing financial statements relative to Francis then he should specialize in the production of Financial Statements .The contrary will apply if he is specialized in answering more phone calls.
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Economic Assignment
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Economics The idea here is to calculate the comparative advantage of both Phil and Francis in accomplishing each of the above tasks. If Phil has a comparative advantage of producing financial statements relative to Francis then he should specialize in the production of Financial Statements .The contrary will apply if he is specialized in answering more phone calls.
Consequently, if Francis has a comparative advantage of producing financial statements vis--vis answering phone calls then he should specialize in financial statements and Phil should be left to answer phone calls.
Price of answering phone calls relative to preparing financial statements
PHIL: 10 = 10 = 0.91
10+1 11
FRANCIS: 12 = 12 = 0.80
12+3 15
Price of preparing financial statements relative to answering phone calls
PHIL: 1 = 1 = 0.091
1+10 11
FRANCIS: 3 = 3 = 0.20
12+3 15
It can be seen from the above calculation that the price of answering phone calls relative to preparing financial statements is lower for Francis than is to Phil.
But the price of preparing financial statements is lower for Phil than is to Francis.
From the above calculation and observation, Francis has a comparative advantage of answering phone calls and should therefore specialize in answering phone calls On the other hand, Phil has a comparative advantage of preparing financial statements and it would be economical if that task of financial statement preparation was bestowed on him.
The extent to which Francis is better of answering phone calls is the same as that of
Phil being better of preparing financial statements. This can be seen through differences/deviations of their price relativities i.e.
For answering phone call: 0.91-0.8 = 0.11
For preparing of financial statements: 0.2-0.091=0.11
This means that none of the two financial planners is self sufficient to do both the preparing of financial statements and answering of phone calls. The opportunity cost of Francis not preparing the financial statements is the same as the opportunity cost of Phil not answering phone calls. Hence nothing shall be lost in terms of opportunity cost if each were to be assigned his special duties. Read More
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