Economic Concepts and Competition - Essay Example

a) Michelle’s opportunity costs of producing the potatoes exclusively instead of the chickens would be 50 chickens per year. b) Michelle’s opportunity costs of producing the chickens exclusively instead of the potatoes would be 200 pounds of potatoes per year. c) James’ opportunity costs of producing the potatoes exclusively instead of the chickens would be 40 chickens per year. d) James’ opportunity costs of producing the chickens exclusively instead of the potatoes would be 80 pounds of potatoes per year. e) Michelle seems to be much more efficient than James at utilizing the same space and resources for the purpose of both raising chickens and growing potatoes.

Perhaps Michelle is a much more experienced farmer than James or perhaps the soil in Michelle’s farm is much more fertile. Regardless Michelle has the absolute advantage in both chicken and potato production compared to James. f) Since Michelle can produce potatoes at a ratio of 4 pounds of potatoes per chicken versus James' ratio of 2 pounds of potatoes per chicken, so to Michelle’s potato crop is more valuable compared to her chicken production. Michelle holds a comparative advantage in the production of potatoes. g) Since James can only produce 80 pounds of potatoes a year, he is able to produce 40 chickens which are more valuable than the 80 pounds of potatoes he can produce on his farm; James holds the comparative advantage in the production of chickens. h) If both James and Michelle were to specialize in the area where they both hold a comparative advantage they would both be better off.

Since based the exchange rate is 2.5 pounds of potatoes for each chicken Michelle’s 200 pounds of potatoes are worth 80 chickens versus her capability of producing 50 chickens. This represents a 60% increase in her overall production. In the case of James 40 chickens are worth 100 pounds of potatoes versus his farm production capacity of capacity of 80 pounds of potatoes. This figure represents a 25% increase in the total production. i) The example of Michelle and James demonstrates how it is important to work while the advantage of taking advantage of your individual competitive capabilities.

For example in a manufacturing business scenario, it is wise to evaluate the firm's production capabilities, and efficiency of the manufacturing line, and concentrate production efforts only on the product lines that provide the majority of your revenue stream. For example, the company could decide to cut its material expenses and operational costs by concentrating its production efforts on only the products that produce most of the revenues and their most profitable product lines. Additionally, the new focus and philosophy of the corporation should be geared towards maximizing production efficiency, continuous improvement and constantly lowering costs of production.

Concentrating corporate efforts on providing maximum economic benefit for the shareholders and specializing in taking advantage of the company's major strengths and minimizing its weaknesses provide the most secure pathway toward long-term success. It is also important to focus business efforts on satisfying the needs of the customers.