TABLE OF CONTENTS Don t ask us how we do investment justification. We just fill out a form and mail it in. After a while, an answer comes back: Yes or No. Usually No.
Economics in general is about deciding how to allocate scarce resources. [1] If resources were not scarce, there would be no problem. Resources in classical economics usually means money, land, and human capital. In our case we deal with time, capital to invest, capable people, and floor space, to name a few. In different situations, we may have more of some and less of others. Frequently, we find that many solutions are possible, but they differ as to which of these resources is favored. One solution may make better use of space but cost more, while another may cost less but take longer to assemble the parts. Thus we find ourselves trading some scarce items for others.
Technology presents us with many choices for performing assembly. Without some means of comparing the alternatives, we have little guidance as to which to choose. Should we invest in designing a simple product so that machines can assemble it in the United States? Should we dispense with simplicity and choose a low-wage country in which to make our product and incur transportation costs and various communication delays? A strict economic analysis, such as described in this chapter, will not totally solve these problems because not all of the alternatives can be expressed directly in the same metric, such as dollars.
