Question

Imagine that the next time the New England Patriots play the Miami Dolphins at Gillette Stadium in Foxborough, Massachusetts, Patriots star quarterback Tom Brady has a temporary lack of judgment and plans to sell Patriots memorabilia during the game because he realizes that he can sell five times more Patriots products than anyone in the stadium sports gear store. Likewise, imagine that you are a creative and effective manager at work and that you tell your employees that during the next six months, you plan to clean the offices because you can clean five times better than the cleaning staff. What error in judgment are both you and Tom making? Why shouldn't you and Tom do what you are better than anyone else at doing?

Short answer

The error in judgement both the manager and Tom Brady are making is failing to consider their unique opportunity costs. Even though they can perform the tasks better, they should not divert their attention from their primary responsibilities where they provide unique value. By doing so, they sub optimize their overall productivity and value generation.

Step-by-step solution

Identify the error you and Tom Brady are making

You and Tom Brady are under the illusion that because you are more productive at a task, you should therefore perform it. However, this undermines the principle of comparative advantage, which states that an individual or entity can produce a good or service at a lower opportunity cost than others. The mistake lies in not considering the potential opportunity costs: what are you giving up by taking on these tasks?

Understand opportunity cost

Opportunity cost refers to the potential gain from other alternatives when one alternative is chosen. Even if you are five times more effective, it doesn't mean you should do it if it means missing out on other opportunities. In the cases given, Tom Brady would be missing out on fulfilling his primary role as a quarterback, while the manager would fail to perform more crucial managerial duties.

Explain why Tom Brady and you shouldn't do what you are better at

The tasks that Tom Brady and the manager at work intend to do could be done at a lower opportunity cost by others. In Brady's case, selling merchandise would take away from his ability to perform in the game, which is far more valuable and cannot be done by anyone else. Similarly, the manager can manage, something the cleaning staff cannot do. Thus, despite their abilities, both individuals would not be utilizing their time effectively. They should focus on tasks only they can do, allowing others to perform tasks which, though performed less efficiently, have less impact if performed by others.

Key concepts

Opportunity Cost

In economic decision making, understanding the notion of opportunity cost is crucial. It’s the benefit or value that one misses out on by choosing one alternative over another. To put it simply, it’s the cost of the next best thing you didn't choose.

Consider a student who chooses to study for an extra hour instead of playing video games. The opportunity cost here is the enjoyment and relaxation they might have gotten from playing. In professional terms, if an employee decides to perform a task that they are exceptionally good at but deprives them of completing higher-priority responsibilities, their opportunity cost is the productivity and output lost from not doing their primary job.

Application in Daily Life and the Work Environment

Opportunity cost is everywhere in our choices. When you decide to sleep in, the opportunity cost might be a missed workout. At work, if a manager spends time on basic administrative tasks they are skilled at instead of strategic planning, the opportunity cost is the long-term benefits of planning they forego. Recognizing this concept helps individuals and businesses to prioritize and make choices that maximize their time and resources.

Principle of Comparative Advantage

The principle of comparative advantage is key to understanding trade and productivity. It suggests that an individual, business, or country is better off specializing in tasks they can perform at a lower opportunity cost compared to others. This doesn't mean they are the best at it, but rather they give up less than others to accomplish the task.

When someone has a comparative advantage in an activity, they should focus on that activity, even if they are more skilled at another task. For example, a famous chef might be able to clean their kitchen faster than anyone else, but cleaning takes time away from creating exquisite dishes, which only they can do to such a high standard. Their comparative advantage is in cooking, not cleaning.

Real-World Implications

On a larger scale, this principle underpins international trade. Countries export goods in which they have a comparative advantage and import those in which they do not. This allows for a more efficient allocation of global resources, boosting productivity and economic growth worldwide.

Economic Decision Making

Effective economic decision making involves analyzing various choices and selecting the one that results in the optimum outcome, considering the constraints of resources. It’s about allocating limited resources in the best way possible to achieve desired objectives.

Each decision has its trade-offs and is influenced by opportunity costs. People make decisions by comparing the expected marginal benefit to their respective marginal cost. If a business wants to increase production, the decision makers need to consider the cost of additional resources and potential profits from selling more products. Sound economic decision making requires a clear understanding of these concepts and an ability to apply them in various scenarios.

Strategic Implementation

In strategic implementation, decision makers evaluate not only the direct costs but also indirect factors such as time, information, and the potential costs of not acting. A thorough analysis leads to informed decisions that can propel an individual or organization toward its goals.