Great example of why I need this blog - because my mind gets all dusty and mushy on some concepts... take our last concept, opportunity cost lesson 2. I had said that one apple made 3 times the profit of oranges and that the equation for that would be x = 3x.
WRONG!!!!
An apple is not an orange and if you matheletes are paying attention, you will realize that one of something cannot be equal to three of the same thing (unless its the Trinity:)) SO...
X is for Apple
Y is for Orange
and X = 3Y, which means that one apple profit is the same as 3 orange profits.
In business you often hear the term "apples to apples comparison" to describe SWOT. Comparing like items or enterprises is the best judge of your item or enterprise. You wouldn't compare your newborn and your 4 year old in terms of who talks back the least because then you'd be really down on the older one. Same concept.
Wednesday, May 18, 2011
Tuesday, May 10, 2011
Opportunity Cost Part 2
OK, so now that you know that opportunity cost is this for that, you need to know what is the best that you can get for your this.
In mommy words, here it is: you have 3 hours without the kids but no access to a car. How do you spend it? TV is relaxing... housework is work but whittles down that to-do list... a nice bath is relaxing but after 3 hours cold... surfing online can be fun but like TV, the after effects make one feel wasted. Eating that favorite dessert without paws reaching in is also nice. There are so many things... what is the best way for you to spend it? Well, thats going to depend on you and your situation. Its that work-play balance again. So much of a certain play is going to cost you so much work and the accompanying stress that comes from not doing it.
In business terms, you can sell apples or oranges. Apples make twice the profit of oranges (so oranges are X and apples are 2X.) So your profit equation is X+2X=Profit.
Doing all apples will cost you your orange labor and profits... which is fine if there is no market for oranges. But what if oranges sell more units than apples (they are eaten more at a certain blogger's household.) Lets say people buy 3 times as many oranges as apples. Now, X apples = 3X oranges. At that point, it is worth your trouble to also sell oranges, simply because your profits may end up exceeding apple profits as a total. So you want to make the most profit out of both oranges and apples.
These equations are called 'constraints.' One would phrase the question, what is the opportunity cost of selling one additional unit of apples?
OK, so its almost dinner, nothing's started, the baby is about to cry, I am hungry, Sesame Street is on and math is not my strong point... I am going to finish this when I can better focus on it... you can see why companies do not encourage bringing your 4 year old, 1 year old and your newborn to work. I promise you a good sequel to this post! Point is, you want to maximize your profit within the given constraints of your market and your product. Baby's crying. See you later!
In mommy words, here it is: you have 3 hours without the kids but no access to a car. How do you spend it? TV is relaxing... housework is work but whittles down that to-do list... a nice bath is relaxing but after 3 hours cold... surfing online can be fun but like TV, the after effects make one feel wasted. Eating that favorite dessert without paws reaching in is also nice. There are so many things... what is the best way for you to spend it? Well, thats going to depend on you and your situation. Its that work-play balance again. So much of a certain play is going to cost you so much work and the accompanying stress that comes from not doing it.
In business terms, you can sell apples or oranges. Apples make twice the profit of oranges (so oranges are X and apples are 2X.) So your profit equation is X+2X=Profit.
Doing all apples will cost you your orange labor and profits... which is fine if there is no market for oranges. But what if oranges sell more units than apples (they are eaten more at a certain blogger's household.) Lets say people buy 3 times as many oranges as apples. Now, X apples = 3X oranges. At that point, it is worth your trouble to also sell oranges, simply because your profits may end up exceeding apple profits as a total. So you want to make the most profit out of both oranges and apples.
These equations are called 'constraints.' One would phrase the question, what is the opportunity cost of selling one additional unit of apples?
OK, so its almost dinner, nothing's started, the baby is about to cry, I am hungry, Sesame Street is on and math is not my strong point... I am going to finish this when I can better focus on it... you can see why companies do not encourage bringing your 4 year old, 1 year old and your newborn to work. I promise you a good sequel to this post! Point is, you want to maximize your profit within the given constraints of your market and your product. Baby's crying. See you later!
Monday, May 9, 2011
Opportunity Cost
This boils down to the question, "What will this cost me in terms of not-money?"
Sounds confusing and it is at first.
In mommy terms, I can feed my tot candy and shut them up for 15 minutes after lunch so I can do the dishes. Candy for short term peace. But candy will also cost me, in terms of cavities and the child's expectations. And behavior issues from the high fructosity. No dessert will take away those expectation but also take away some of my time to do dishes and some of my 'nice mommy' points. Fruit is a good compromise...
Anyways, I digress. There's only so much of any one resource. Take labor. There are only so many laborers in the country. If the US shut down all industry but automaking, there would be no one in the country to make food and prices of that commodity would increase (even more so than they do.) If people only labored in food production, there would be no one to educate our children. A teacher cannot teach and produce food at the same time (or devote their full resources.) Or they can produce food well but only if they give up some of their teaching time. An acre of corn will cost a teacher 3 hours of class time. When discussing opportunity cost, do not get bogged down with details such as multitasking and monetary issues. Look at it as an exchange of goods.
Translated into pure cash perspective, though, its having $10 to spend on anything you want. You could get 3 Starbucks drinks or 4 McDonald's coffee drinks. You could get 2 gallons of gas. You could buy an hour of babysitting. But you cannot buy all of the above with just $10. That resource is limited.
Translated into time, you have an hour without children. You can do laundry and dusting, you can catch up on TV you've been recording, you can read that novel you haven't been able to finish, you can take a hot bath, you can nap... bu you cannot do it all... spring cleaning may cost you a nap. Or a nap will cost you dusting 3 rooms.
Agrarian countries are having trouble with this at present. At one time they mainly grew and sold food. But with populations and high paying jobs moving to cities (think China) there are fewer workers available to produce food. This creates a shortage of food in the country, overall. More educated workers are costing the nation in skilled farmers. This is directly affecting their need to import foodstuffs and export goods and services that other countries need.
I think stay at home moms have a better grasp of opportunity cost than most. Staying at home, you get time with your kids when they're little, something you can never recover. But you lose points, professionally, and you gain gaps in your resume. However, you also have less stress from having to 'do it all' because you discover thats just a myth anyways:) Even moms who work from home, like me, can point to their opportunity costs. I can make a pair of baby booties for $15 or I can take an hour and a half nap or clean my house or surf the 'net. But those activities will cost me the pair of booties and the profit from them. Anyone else have examples of this from their lives?
Sounds confusing and it is at first.
In mommy terms, I can feed my tot candy and shut them up for 15 minutes after lunch so I can do the dishes. Candy for short term peace. But candy will also cost me, in terms of cavities and the child's expectations. And behavior issues from the high fructosity. No dessert will take away those expectation but also take away some of my time to do dishes and some of my 'nice mommy' points. Fruit is a good compromise...
Anyways, I digress. There's only so much of any one resource. Take labor. There are only so many laborers in the country. If the US shut down all industry but automaking, there would be no one in the country to make food and prices of that commodity would increase (even more so than they do.) If people only labored in food production, there would be no one to educate our children. A teacher cannot teach and produce food at the same time (or devote their full resources.) Or they can produce food well but only if they give up some of their teaching time. An acre of corn will cost a teacher 3 hours of class time. When discussing opportunity cost, do not get bogged down with details such as multitasking and monetary issues. Look at it as an exchange of goods.
Translated into pure cash perspective, though, its having $10 to spend on anything you want. You could get 3 Starbucks drinks or 4 McDonald's coffee drinks. You could get 2 gallons of gas. You could buy an hour of babysitting. But you cannot buy all of the above with just $10. That resource is limited.
Translated into time, you have an hour without children. You can do laundry and dusting, you can catch up on TV you've been recording, you can read that novel you haven't been able to finish, you can take a hot bath, you can nap... bu you cannot do it all... spring cleaning may cost you a nap. Or a nap will cost you dusting 3 rooms.
Agrarian countries are having trouble with this at present. At one time they mainly grew and sold food. But with populations and high paying jobs moving to cities (think China) there are fewer workers available to produce food. This creates a shortage of food in the country, overall. More educated workers are costing the nation in skilled farmers. This is directly affecting their need to import foodstuffs and export goods and services that other countries need.
I think stay at home moms have a better grasp of opportunity cost than most. Staying at home, you get time with your kids when they're little, something you can never recover. But you lose points, professionally, and you gain gaps in your resume. However, you also have less stress from having to 'do it all' because you discover thats just a myth anyways:) Even moms who work from home, like me, can point to their opportunity costs. I can make a pair of baby booties for $15 or I can take an hour and a half nap or clean my house or surf the 'net. But those activities will cost me the pair of booties and the profit from them. Anyone else have examples of this from their lives?
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