Question

ABC​ Software, a small software​ producer, decides to renovate its premises. Instead of hiring an outside contractor and​ tradespeople, the firm decides to use its

employeeslong dash—​secretaries,

​programmers, sales​ staff, and

otherslong dash—to

do most of the work.  

The firm makes all its employees try painting and carpentry and other tasks needed for the renovation and selects the people with the strongest skills in those areas to take time off from their regular tasks and work on the renovation. Is this strategy a good​ one? Why or why​ not?

This strategy

.

is a good one because it is based on comparative advantage.

B.

is not a good one because it should be based on opportunity costs.

C.

is not a good one because it should be based on total output.

D.

is a good one because it is based on absolute advantage.

E.

is a good one because it should be based on renovating skills.

Answer 1

This strategy is not good because it is not recognising the advantage hiring specialised workers who have a lower relative opportunity cost of providing the same services. Instead of delegating the task to the in-house team who is less capable of handling it because of a higher opportunity cost it is better to outsource the same to someone who uses the comparative advantage of having a lower opportunity cost of providing these services.

Option B is correct.