# Janet Kim, president of Kim Manufacturing, Inc., is considering whether to build more...

## Question:

Janet Kim, president of Kim Manufacturing, Inc., is considering whether to build more manufacturing plans in Wisconsin. Her decision is summarized in the following table:

AlternativesFavorable Market ($)Unfavorable Market ($)
Build a large plant400,000-300,000
Build a small plant80,000-10,000
Don't build 00
Probabilities0.40.6

a. Construct an opportunity loss table.

b. Determine EOL and the best strategy.

c. What is the expected value of perfect information?

## Determining the Opportunity Loss:

The opportunity cost or loss is defined as the increment cost incurred by choosing a particular alternative or strategy over the best alternative or strategy available which yields the maximum payoff. Hence, it is the cost incurred by not choosing the best alternative.

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The answers to all the given sub-questions are explained below:

a. Construct an opportunity loss table

AlternativesFavorable Market (\$)Opportunity...

How to Calculate Opportunity Cost

from

Chapter 1 / Lesson 3
51K

Learn the formula that reveals the economic value in any major choice between two possibilities. Every choice involves tradeoffs, and opportunity cost shows you how to measure these tradeoffs.