Final answer:
John correctly decides to add a staff member to the Service Centre based on the increased average daily waiting cost ($275.02) being greater than the additional staff member’s daily cost ($269.23). This reflects an application of opportunity cost, favoring the addition of the staff member to avoid higher costs associated with increased customer waiting times.
Step-by-step explanation:
John's decision-making process regarding whether to add one additional staff member to the Service Centre is indeed correct. He is basing his decision on the comparison of daily costs. The current cost per day for a staff member is $269.23, which includes the staff member's salary divided by the total number of working days. On the other hand, the average waiting cost per day has increased to $275.02 due to a higher arrival rate of customers possibly requiring service, thus leading to potential lost business or lowered customer satisfaction.
By comparing these two costs, John determines that by hiring an additional staff member, the service center would save money or avoid increased costs in the long run since the cost of the additional staff is less than the increased waiting cost. This analysis is a practical application of opportunity cost, which is the cost of the next best alternative foregone. In this case, the opportunity cost of not hiring an additional staff member is higher than the cost of hiring one.
Thus, given that the staff member's cost per day is less than the increased waiting cost per day, John's decision to add one staff member is justified economically. This example illustrates the importance of understanding and applying the concept of opportunity cost to everyday business decisions.