Monday, January 26, 2009

There's gold in them thar hills!

In the Woody Allen film Radio Days, a character who has never been able to succeed in the world of business decides to begin a career engraving gold jewelry. He argues that this should be especially lucrative because the engraver gets to keep the gold dust from other people's rings. Using economics, explain what is wrong with this character's assessment of his potential career choice?


Stephanie French said...

This is a poor career choice because the opportunity cost that he is giving up is very high for a small profit. He is spending a great deal of time to engrave and he only gets to keep a little bit of the dust. It may take a longer amount of time to get enough dust to actually be profitable.

Stephanie French

Greg Delemeester said...

You've almost nailed the argument, Stephanie. Focus on the income potential from the gold dust as part of your answer.

NathanLord said...

This is a poor career choice for several reasons. The first is the opportunity cost. He is giving up much of his time for what seems to be little profits. The second problem is that he is a "price taker" If the market price of gold goes down, then the potential money for him to make decreases. His profits are partly a function of the market for gold. If prices go down to low below his variable costs, then he is in trouble. He has no say in the amount of profits he can make. His only sure way of pricing is the amount he charges for the engravings.

These are the reasons this is a bad assessment of his potential career choice.