Coronavirus has changed the way organisations operate. Many workers, including JT have greater flexibility on whether to work from the office or from home. JT 's employer allows her to either sign up for a 5-day work from home arrangement OR a 5-day work from the office arrangement.

JT currently lives alone in a studio apartment and leases a car that she uses on weekends. The car lease payments is a fixed amount she pays each month and does not depend on her actual usage of the car.

Which of the following pieces of information would likely be relevant when JT decides whether to work from home or from the office? Assume that JT commutes to her work place using public transport.

The cost of leasing her car.
The cost of heating and cooling her apartment during office hours.
The benefits/value she gets from interacting with her colleagues in the office.

Question

Coronavirus has changed the way organisations operate. Many workers, including JT have greater flexibility on whether to work from the office or from home. JT 's employer allows her to either sign up for a 5-day work from home arrangement OR a 5-day work from the office arrangement.

JT currently lives alone in a studio apartment and leases a car that she uses on weekends. The car lease payments is a fixed amount she pays each month and does not depend on her actual usage of the car.

Which of the following pieces of information would likely be relevant when JT decides whether to work from home or from the office? Assume that JT commutes to her work place using public transport.

The cost of leasing her car. 
The cost of heating and cooling her apartment during office hours. 
The benefits/value she gets from interacting with her colleagues in the office.

BlackTom AI · Accepted Answer

Sunk costs are costs already committed and unaffected by current choices; therefore a fixed car lease payment that does not change with JT’s work location is irrelevant to her decision.

1. Relevant knowledge points and concepts
- Sunk vs incremental costs: Sunk costs (already incurred or fixed irrespective of the decision) should not affect forward-looking choices. Incremental (marginal) costs and benefits that change depending on the alternative are relevant.
- Non-monetary benefits and utility: Qualitative gains (e.g., social interaction, collaboration) are part of the benefit side and affect decision-making even if not expressed as cash costs.
- Avoidable household costs: Utilities like heating/cooling may increase if JT is home during daytime; these are incremental and therefore relevant.

2. Step-by-step reasoning
Step 1: Examine the car lease. The problem states lease payments are fixed monthly and do not depend on usage. Whether JT works from home or office, the monthly lease remains the same. Thus it is a sunk/fixed cost for this decision and should not influence the choice.
Step 2: Examine apartment heating/cooling. If JT stays home all weekdays, daytime heating or cooling will likely rise compared with being away at the office. That is a cost that changes with the decision, so it is relevant.
Step 3: Examine benefits of coworker interaction. The value JT gains from face-to-face collaboration, mentoring, or social contact occurs primarily at the office; this benefit differs between alternatives and is therefore relevant.

3. Calculations
No numerical calculation is required; reasoning is qualitative based on whether costs/benefits change between alternatives.

4. Why the correct answer is correct
Items 2 and 3 are incremental and vary with the choice: heating/cooling costs will likely increase if working from home, and colleague interaction is an office-specific benefit. Both are decision-relevant.

5. Why other options are incorrect
Item 1 (car lease cost) is incorrect because it is fixed and does not change with the decision; it is a sunk cost for this choice. If the lease were usage-based, it would be relevant, but it is not.

Conclusion: The relevant pieces of information are Item 2 and Item 3 only, which matches the provided answer.

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