Situation #1 Assume that you have hired three executives to run your company each with a different job. All are equally productive and each can do the other person’s job if necessary. Assume that the first executive’s contribution to the company is worth $1,000,000 and is assigned to this task; the second one is worth $800,000 and the third one is worth $500,000.
-Referring to Situation #1 suppose that you decide that you have to fire the first and the third executive without hiring any replacements. What would be the opportunity cost of the second executive's work? Explain why your answer is not the same as in the question above.

Question

Quizplus · Accepted Answer

The Answer is The opportunity cost of second executive's work is $800,000. The reason is that since each executive can perform any work that they other can then it makes sense to change the second executive's job so that he is now doing the most highly valued work - that with the $1,000,000 value. That leaves the $800,000 job undone which means that becomes the opportunity cost of the second executive's work.

Situation #1 Assume That You Have Hired Three Executives to Run