As a manager of a financial planning business you have two financial planners, Phil and Francis. In an hour, Phil can produce either one financial statement or answer 8 phone calls, while Francis can either produce 4 financial statements or answer 10 phone calls. Does either person have an absolute advantage in producing both products? Should these two planners be self-sufficient (each producing statements and answering phones) or specialize? Be sure to show your work.
In order to maximize points earned, the following template should be used in answering this assignment. (Please copy and paste the template provided below (items 1 to 3), but not these instructions,into a Word document and state your answers below each question.) Include a cover sheet that follows APA guidelines (5 points):
1. a. Draw a table similar to Table 3.1 on page 52 of the text and in it show the analysis on which answers are based. (25 points)
1.b. Does any person have absolute advantage in both activities? If so, who does? Explain your answer with reference to the table data. (20 points)
1.c. Should both planners be self-sufficient or specialize? If you indicate that they should specialize, then explain who should do which activity and why, with reference to the data in your table. (40 points)
1a. Table:
Planner | Financial Statements per hour | Phone Calls per hour
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Phil | 1 | 8
Francis | 4 | 10
1b. To determine if any person has an absolute advantage in both activities, we need to compare their productivity in each activity.
For financial statements per hour:
- Phil can produce 1 financial statement per hour.
- Francis can produce 4 financial statements per hour.
As Francis can produce 4 financial statements per hour while Phil can only produce 1, Francis has an absolute advantage in producing financial statements.
For phone calls per hour:
- Phil can answer 8 phone calls per hour.
- Francis can answer 10 phone calls per hour.
As Francis can answer 10 phone calls per hour while Phil can only answer 8, Francis has an absolute advantage in answering phone calls.
Therefore, neither person has an absolute advantage in both activities.
1c. Based on the data in the table, it is more efficient for the financial planners to specialize rather than be self-sufficient.
Specialization means that each planner focuses on the activity in which they have a comparative advantage.
From the table, we can see that Francis has a higher productivity in both producing financial statements and answering phone calls. Therefore, Francis should specialize in both activities.
Phil, on the other hand, has a lower productivity in both activities. It would be more beneficial for Phil to focus on the activity in which he has a relatively higher productivity compared to Francis, which is answering phone calls.
By specializing, Francis can focus on producing financial statements, while Phil can focus on answering phone calls. This allows them to leverage their respective strengths and maximize productivity.