economic principles to a business decision
Apply economic principles to a business decision. Select one situation from the items outlined belowSituation A
Jenny, your niece, is a smart high-school student who wants to make smart choices for her future. Hearing of your course in Business Economics, she has emailed you asking for advice on whether to become a medical doctor and on the best location to practice it. She recognizes the high costs of tuition and the years of study involved in becoming a doctor. She wants to evaluate if that career choice is an optimum decision for her. So she has asked you for advice.
Having read the introduction to Chapter 1 on page 3 of the textbook, you recognize the significance of such a career decision for Jenny. You decide to examine the career choice in terms of the utility it provides to Jenny: return on investment as well as personal satisfaction of contributing to the well-being of others. But to evaluate the utility, you also need to identify and quantify the total opportunity costs of the decision. You decide to educate yourself about the market for physicians in terms of supply and demand, elasticity, costs of production, pricing, and normal profit. You want to provide Jenny with the most informed advice possible.
Your neighbor Cindy wants to start a contracting business for installing solar panels. She has heard of the cost savings that households and businesses can make each year from installing solar panels on the roofs. Cindy has also heard of government incentives for installing solar panels. Being concerned about the environment and wishing to reduce pollution, Cindy thinks installing solar panels also serves a social purpose. But she does not want to risk her life’s savings on a venture that might not succeed or become profitable enough. After hearing from you about taking this course in Business Economics, she decides to ask you for advice.
At first you were hesitant to give investment advice. Then you read the section “Losing Money in the Solar Panel Industry” on pages 402-403 of the textbook, and the need for differentiation in Chapter 13. You realize there are more pieces to the decision than Cindy is considering. You decide to research the market in terms of supply and demand, elasticity, costs of production, pricing, normal profit, and savings for consumers. You want to provide Cindy with the most informed advice possible
Cousin Edgar is always thinking of the next business idea. This time, he plans to invest in buying two gas stations. He reckons American consumers have come to accept the high gasoline prices, and estimates world prices for gasoline will increase even further due to increasing high demand from India and China. Besides, Cousin Edgar thinks he will make a good profit on the sale of convenience items at each station. But before buying the gas stations, he decides to ask for your advice since you are taking this course in Business Economics. D
After hearing of your taking this course in Business Economics, your college friend has emailed you asking for advice on opening a restaurant. Your friend Rajeev reminded you of his popular recipes for Indian food, and shared his dream of building a franchise business modeled on the RE Chang chain of restaurants. He reckons that creating special fusion recipes based on a popular ethnic cuisine will provide the restaurant chain with sufficient differentiation to become profitable and to grow nationwide.
Luckily before you could find time to answer Rajeev’s email, you read the pieces on Starbucks and opening a restaurant, on page 425 of the textbook. Recognizing the costs and risks for Rajeev, you decide to research the market in terms of supply and demand, elasticity, production costs, pricing, normal profit, and the supply chain for ethnic cuisine. You decide to educate yourself about the restaurant business so you can provide Rajeev with the most informed advice possible.