Evaluation of Opportunity Cost of Studying MBA at IBA

Assignment on

EVALUATION OF THE OPPORTUNITY COST OF STUDYING MBA AT IBA

Prepared for

Prof. Dr. A K M Saiful Majid Course Instructor

E501: Managerial Economics

Prepared by

Ahsan Azhar Shopan Roll: ZR 54

MBA 47D

Institute of Business Administration

University of Dhaka

March 21, 2013

Letter of Transmittal

March 21, 2013

Dr. A K M Saiful Majid

Professor


University of Dhaka

Sir:

I am pleased to inform you that I have completed the assignment as per your instruction, on

the theme “Evaluate the opportunity cost of your studying MBA at IBA”, as a requirement of

the course, Managerial Economics. The title of my assignment is “Evaluation of the

Opportunity Cost of Studying MBA at IBA”.

I am really thankful for the opportunity to work on this assignment as it allowed me to get an

interesting fact and a brief understanding of economics.

I will be very happy to address any further queries in this regard.

Thanking you,

Ahsan Azhar Shopan

Roll: ZR 54

MBA 47D


University of Dhaka

(a) Evaluation of the opportunity cost of studying MBA at IBA

Opportunity cost is the cost of any activity measured in terms of the value of the next best

alternative forgone (that is not chosen). It is the sacrifice related to the second best choice

available to someone, or group, who has picked among several mutually exclusive choices.

The opportunity cost of me studying at IBA is earning salary and saving time at Standard

Bank Limited. That is if I were not studying at IBA, I would have instead worked at Standard

Bank Limited and earned money. Also the time saved by not investing time studying,

preparing assignments and presentations is an added cost.

The opportunity cost and benefits of working at Standard Bank Limited for 10 years starting

from 2012 are listed below.

Year Cost Benefit

2012 Living Cost 180,000 Taka Salary 300,000 Taka









2022 Living Cost 386,000 Taka Salary 1,055,362 Taka

Net Total 2,810,000 Taka 6,091,115 Taka

Benefit 3,281,115 Taka

Salary was increased at a rate of 15 percent per annum. Living expenses were increased by

24000 Taka per annum. No provision was made for the time value of money since the risk

factor associated with this decision could not be ascertained. Initial salary was 25000

Taka/month and the living cost was 15000 Taka/month. Bonuses and taxations were not

considered.

Working for Standard Bank Limited provided a net benefit of 3,281,115 Taka in terms of

monetary benefit.

Social Benefit

1. Increased respect that comes with a decent job at a Bank.

2. Intellectual recognition.

Assumptions

1. This study considered that, I will work for Standard Bank Limited for the next 10

years.

2. No major social changes like marriages or death in the family were considered.

3. The analysis considered the economic situation of the global and local economy to be

constant.

4. Except for salary and living costs, all other variables were considered to be constant.

(b) Individual and social costs (monetized and non-monetized) of this study choice.

Year Cost Benefit

2012 Study & Living Costs 226,000 Taka

2013 Study & Living Costs 230,000 Taka









Net Total 2,882,000 Taka 7,412,480 Taka

Benefit 4,530,480 Taka

Salary was incremented at the rate of 15 percent each year. Living expenses were increased

by 24000 taka per annum. Initial salary was 45000 Taka/month and the living cost was 15000

Taka/month. Study costs were 46000 Taka and 26000 Taka in the year 2012 and 2013

respectively. The analysis shows an increased monetary benefit of 12,49,365 Taka. Bonuses

and taxations were not considered.

In addition to the monetary benefits of studying at IBA, the social Benefits are listed below:

1. Intellectual Development

2. Increased Recognition

3. Increased Social Status

4. Increased Marital Prospects

5. Increased Managerial Capability

6. Greater presentation skills

7. Better relations with parents and relatives

8. Access to greater network of people and opinion leaders

Thus, the decision for studying IBA proved most beneficial in terms of both monetary and

social benefits.

Assumptions

1. This study considered that, I will work for the same company for the next 8 years.

2. No major social changes like marriages or death in the family were considered.

3. The analysis considered the economic situation of the global and local economy to be

constant.

4. Except for salary and living costs, all other variables were considered to be constant.

(c) Relating the 10 principles of economics, as applicable, to this study choice.

1. People face tradeoffs People have unlimited desires and the world with its scarce resources does not have the

ability to satisfy them. That is why tradeoffs are the norm in this world. One cannot study

MBA as a regular student and work for Standard Bank Limited at the same time.

2. The cost of something is what you give up to get it The opportunity cost of studying MBA at IBA is the income and status opportunity lost by

not working for Standard Bank Limited as a probational senior officer.

3. Rational People think at the margin

4. People respond to incentives Incentives are something that induces a person to act. A person studies MBA at IBA because;

IBA graduates receive the most lucrative jobs and the most prestige in the corporate sector of

Bangladesh.

5. Trade can make everyone better off Specialization is norm in societies today. Countries specialize in particular products and trade

their specialized products for other products from other countries. IBA produces MBA

graduates who in turn work for companies. Part of their salaries, hard work, knowledge and

company funds are reinvested into IBA in the form of infrastructure investment, monetary

investment, brand equity etc.

6. Markets are usually a good way to organize economic activity

The market forces of supply and demand as determined by millions of firms and households

for their self interests which are guided by invisible hands have positive effects on the whole

economy and ensure the maximum utilization of scarce resources. The high demand for MBA

graduates exists because millions of people and firms place a high value on their capability.

7. Government can sometimes improve market conditions The rules and regulations enforced by the government ensure the proper functioning of IBA.

Without the salaries paid to teachers and staff at IBA, educational activity at the institute

would ground to a standstill. Governmental Public policy ensures the proper functioning of

the market economy. Without a healthy economy, the demand for IBA graduates would

deteriorate.

8. A Country’s standards of living depend on its ability to produce goods and services The skills learned by MBA graduates at IBA have the potential to increase the productivity of

the goods and services produced and hence increase the living standards of the people in the

country.

9. Prices Rise when government prints too much money Printing of too much money by the government will increase the cost of education for MBA

graduates. Moreover living cost will also increase.

10. Society faces a short run trade of between inflation and unemployment Increasing the amount of money in the economy will stimulate the overall spending and

demand in the economy in the long run. This will encourage firms to raise their prices and

hence hire more workers, which will lead to increase in employment for IBA MBA

graduates.

Evaluation of Opportunity Cost of Studying MBA at IBA

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