Question

What are the economic costs of waiting lines? How might these costs be measured? What decision criteria can be used to justify expanding services to reduce waiting times?

Answer 1

Answer-
The economic costs associated with waiting lines include waiting cost of the customers, loss of the sales when a customer refuses to wait, and service facility cost.
Explanation:
Waiting cost of the customers - The customers who are waiting for the service incurs cost since as they wait, they are not producing. In fact, the longer the customers wait, the more the production time is wasted. This cost of waiting can be measured easily, for instance, when a customer belongs to a similar organization the one providing the services. The cost associated with waiting, in this case, is actually the wage which is wasted whilst waiting.
Loss of sales - This is the cost associated with customers who decide not to wait in the line, and thus do not buy. This cost can be measured by the number of customers who leave without buying the products or services which they usually buy.
Service facility cost - This entails the costs incurred in providing services which include the capital investment cost, maintenance cost, and operating cost. The addition of a facility to the system requires more space, fixtures, and furniture. To provide all this, the organization may require to borrow additional capital or spend additional money on the facility. These costs can be measured by the interest rates which is paid on the money borrowed to put in place the system.
The decision criteria for expending service to reduce waiting time is the total economic cost saved. If by expanding the services an organization will reduce the economic costs, which means increased profits, then the organization will proceed to expand the services in order to reduce the waiting times.