Question

Should you video conference or travel to a business meeting?

1. Suppose you own a profitable small business in Washington, D.C. You desire to hold an essential 1-hour meeting with business executives in New York, NY. You have two options:
2. You can fly to New York. You own 25,000 frequent-flyer miles, which you can return to the airline at any time for a free ticket anywhere in the United States. Thus, you need not pay for your flight to New York. Your only expenditures would be for 15-minute cab rides to and from the airport in D.C. (fares = $25 each way) plus 15-minute cab rides to and from the airport in New York (fares = $25 each way). Or,
3. You can use a video conferencing facility. Last January, you paid $3,000 to obtain access to a video conferencing facility located within your office building for one year. You also must pay $125/hour for each hour the facility is used.

You estimate the meeting will be equally effective (the benefit is assumed to be the same) if held in person or via video conferencing. What option should you choose and why? How should you think about this decision? Make sure to calculate both the implicit and explicit costs of both options. You don’t need to make any additional assumptions other than those given in this scenario to make your decisions. Please also pay attention to the sunk cost that may complicate your decision. Therefore, review the concept of sunk cost very carefully before you complete your post.

Answer 1

I should choose the option travel to attend the business meeting. In case of traveling there will be no ticket cost but if I travel then I have to incur the explicit cost of cab ride fee which is $25 from Washington DC to airport each way therefore total it will be $25*2 =$50. There will be another expenditure as fee for cab riding to airport to New York meeting place and i.e also $25 for each i.e in total it will be $25*2 = $50. So total expenditure as cab fee will be $50+$50 = $100.

On the other hand if meeting is done through video conferencing the cost of using the facility is $125 per hour. This cost is more than the cost of cab riding expenditure which is $100. So in case of explicit cost I shall choose to travel for attend the meeting.

Now comes the sunk cost which is the cost we can not get back once it is done. The cost of 25000 frequent flyer miles and cost of getting access of video conferencing i.e $3000 which already have been spend earlier. These two cost I have to incur whether I shall attend the meeting by traveling or video conferencing. The cost of owning 25,000 frequent flyer miles will not change if I attended the meeting through video conferencing and again the cost of getting access of using video conferencing facilities which have already done can not be get back. So these two costs are kind of sunk cost and these cost will not affect the decision.

Another thing we have to look here is the cost of time i.e when I shall attend the meeting by traveling then there will be time spending of going through air and going by cab i.e also 60 minutes. But the cost of timing has not given clearly. So we did not consider this time cost.

On the basis of only explicit cost the decision has been made. On the basis of explicit cost traveling is better. Sunk cost we have taken into account but this does not affect the decision.