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    Following are examples of typical economic decisions made by

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    1- Following are examples of typical economic decisions made by the managers of a firm. Determine whether each is an example of what, how or for whom.

    a- Should a company make its own spare parts or buy them from an outside vendor ?

    b- Should the company continue to service the equipment that it sells or ask customers to use independent repair companies?

    c- Should a company expand it's business to international markets or concentrate on the domestic market?

    d-Should the company replace it's own communications network with a virtual private network that is owned or operated by another company?

    e- Should the company buy or lease the fleet of trucks that it uses to transport it's products to market?

    2- Because of inflation, a company must replace one of it's (fully depreciated ) machines at twice the nominal price paid for a similar machine eight years ago. Based on present accounting rules , will the company have covered the entire cost of the new machine through depreciation charges? Explain by contrasting accounting and economic costs.

    3- You have a choice of opening your own business or being employed by someone else in a similar type of business. What are some of the considerations in term of opportunity costs that you would have to include in arriving at your decision?

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    Solution Preview

    1- Following are examples of typical economic decisions made by the managers of a firm. Determine whether each is an example of what, how or for whom.

    a- Should a company make its own spare parts or buy them from an outside vendor ? HOW (to process)

    b- Should the company continue to service the equipment that it sells or ask customers to use independent repair companies? FOR WHOM (would be most benefited by the decision)

    c- Should a company expand it's business to international markets or concentrate on the domestic market? WHAT (should the company do, based on the given info.)

    d-Should the company replace it's own communications network with a virtual private network that is owned or operated by another company? HOW (should the company proceed with the given scenario)

    e- Should the company buy or lease the fleet of trucks that it uses to transport it's products to market? WHAT (should the company do)

    2- Because of inflation, a company must replace one of it's (fully depreciated ) machines at twice the nominal price paid for a ...

    Solution Summary

    Following are examples of typical economic decisions made by the managers of a firm. Determine whether each is an example of what, how or for whom.

    a- Should a company make its own spare parts or buy them from an outside vendor ?

    b- Should the company continue to service the equipment that it sells or ask customers to use independent repair companies?

    c- Should a company expand it's business to international markets or concentrate on the domestic market?

    d-Should the company replace it's own communications network with a virtual private network that is owned or operated by another company?

    e- Should the company buy or lease the fleet of trucks that it uses to transport it's products to market?

    2- Because of inflation, a company must replace one of it's (fully depreciated ) machines at twice the nominal price paid for a similar machine eight years ago. Based on present accounting rules , will the company have covered the entire cost of the new machine through depreciation charges? Explain by contrasting accounting and economic costs.

    3- You have a choice of opening your own business or being employed by someone else in a similar type of business. What are some of the considerations in term of opportunity costs that you would have to include in arriving at your decision?

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