A few years ago

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Cornell University *

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3220

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Economics

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Nov 24, 2024

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A few years ago, my company decided to allocate a significant portion of its budget to develop a new software feature, anticipating that it would give us a competitive edge. The opportunity cost here was not investing those resources in upgrading our existing product suite, which was showing signs of aging. The decision was made based on the potential for innovation and market disruption. However, it was not grounded in a thorough analysis of opportunity costs. Had we considered the benefits of upgrading our existing products, we might have realized that it would lead to immediate customer satisfaction and retention, which is crucial in our competitive industry. The software feature we invested in took longer than expected to develop, and by the time it was ready, the market had evolved, and the feature was no longer as novel or in-demand as we had anticipated. Assuming the investment in the new software feature was $500,000 and the expected increase in revenue was $600,000 we ended up with a net loss of $500,000. If we had invested that $500,000 in upgrading our existing products, and assuming a conservative increase in customer retention led to an additional $750,000 in revenue, we would have seen a net gain of $250,000. The profit consequence of the decision, in this case, would be a difference of $750,000 ($250,000 - (-$500,000)). Conclusion In conclusion, the chapters provide invaluable insights into the intricacies of decision- making in business. Understanding opportunity costs, conducting thorough cost-benefit analyses, and making informed extent decisions are all pivotal in navigating the complex landscape of business, ultimately driving the firm towards success and sustainability. The reflection on a real- world decision involving opportunity costs further underscores the vital role these concepts play in managerial economics.

References Froeb, L. M., McCann, B. M., Shor, M., & Ward, M. (2018). Managerial economics: A problem solving approach . Cengage Learning.

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