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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 Institute of Business Administration 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 Institute of Business Administration 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 2012 2013 2014 2015 2016 2017 2018 2019 2020 2022 Net Total Cost Living Cost Living Cost Living Cost Living Cost Living Cost Living Cost Living Cost Living Cost Living Cost Living Cost 180,000 Taka 204,000 Taka 228,000 Taka 242,000 Taka 266,000 Taka 290,000 Taka 314,000 Taka 338,000 Taka 362,000 Taka 386,000 Taka 2,810,000 Taka Salary Salary Salary Salary Salary Salary Salary Salary Salary Salary Benefit 300,000 Taka 345,000 Taka 396,750 Taka 456,263 Taka 524,702 Taka 603,407 Taka 693,918 Taka 798,006 Taka 917,707 Taka 1,055,362 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 2012 2013 2014 2015 2016 2017 2018 2019 2020 2022 Net Total Cost Study & Living Costs Study & Living Costs Living Cost Living Cost Living Cost Living Cost Living Cost Living Cost Living Cost Living Cost Benefit 226,000 Taka 230,000 Taka 228,000 Taka 242,000 Taka 266,000 Taka 290,000 Taka 314,000 Taka 338,000 Taka 362,000 Taka 386,000 Taka 2,882,000 Taka

Salary Salary Salary Salary Salary Salary Salary Salary

540,000 Taka 621,000 Taka 714,150 Taka 821,272 Taka 944,463 Taka 1,086,132 Taka 1,249,052 Taka 1,436,411 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 Countrys 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.