Instruction 17-3
The following payoff matrix is given in dollars.
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Instruction 17-3,the expected opportunity cost (EOL)for Action A is
A)300.
B)200.
C)0.
D)100.

Question

Quizplus · Accepted Answer

The expected opportunity cost (EOL) for Action A is the expected value of the payoff from Action B minus the expected value of the payoff from Action A. The expected value of the payoff from Action B is 0.5 * 300 + 0.5 * 100 = 200. The expected value of the payoff from Action A is 0.5 * 200 + 0.5 * 0 = 100. Therefore, the EOL for Action A is 200 - 100 = 100.

Instruction 17-3 The Following Payoff Matrix Is Given in Dollars