Question

B.F. Retread, a tire manufacturer, wants to select one of three feasible prototype designs for a new tire; A, B, C. Revenues Low (0.30) Medium (0.50) High (0.20) A 120,000 255,000 390,000 B 130,000 295,000 460,000 C 100,000 300,000 480,000 What is the minimum expected opportunity loss?

Answer 1

Answer:

Minimum Expected opportunity loss is design A = $241,500

Explanation:

Designs     Revenues   probability     expected Revenue

A               $120,000       0.3                $36,000

                $255,000       0.5                $127,500

                $390,000       0.2                $78,000

Total                                                                                  241,500

B              $130,000        0.3                 $39,000

               $295,000       0.5                  $147,500

               $460,000       0.2                  $92,000

Total                                                                                  278,500

C            $100,000        0.3                    $30,000

             $300,000        0.5                    $150,000

             $480,000         0.2                   $96,000

Total                                                                                 276,000

Design A and Design C are both opportunity losses but between the two opportunity losses Design A is the minimum expected opportunity Loss.