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 the phone 8 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 or specilize? Be sure to show your work.
Take a shot. What do you think. Hint: the planners should specialize.
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 2 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.
I have no clue.
To determine if either person has an absolute advantage in producing both products, we need to compare their productivity for each task.
Let's start by calculating their productivity in producing financial statements:
- Phil can produce 1 financial statement in 1 hour.
- Francis can produce 4 financial statements in 1 hour.
Therefore, Francis has an absolute advantage in producing financial statements as he can produce 4 times as many as Phil in the same amount of time.
Next, let's calculate their productivity in answering phone calls:
- Phil can answer 8 calls in 1 hour.
- Francis can answer 10 calls in 1 hour.
Here, Francis has a higher productivity in answering phone calls as he can answer 2 more calls than Phil in the same time frame.
Based on these calculations, Francis has an absolute advantage in both producing financial statements and answering phone calls.
Now, let's analyze the concept of self-sufficiency versus specialization in this scenario:
If the goal is to maximize overall productivity, it would be more efficient for Phil and Francis to specialize in tasks they have a comparative advantage in.
In this case, Francis has a higher productivity in both producing financial statements and answering phone calls. Therefore, it would be beneficial for Francis to specialize in both tasks, while Phil could focus on the task in which he has a comparative advantage (answering phone calls). By doing so, the business can increase its overall output and efficiency.
It is important to note that specialization often leads to increased efficiency and productivity, as individuals can focus on tasks they excel in and become more proficient over time.