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Expected profit

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A company operating a chain of drug stores plans to open a new store in one of the locations. The management of the company figures that at the first location the store will show an annual profit of $20,000 if it is successful and an annual loss of $2,000 if it is not. At the second location, the store will show an annual profit of $25,000 if it is successful and an annual loss of $5,000 if it is not. If the probability of success is 3/5 in the first location and 2/5 in the second location, where should the company open the new store so as to maximize expected profit?

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Expected profit is determined.

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Analyze Cost and Role in Decision Making

Analyzing Cost and Its Role in Decision Making

The concept of opportunity cost and examination of how to calculate the cost of alternatives over single and multiple time periods. Analyze cost and its role in the decision-making process by answering the following questions:

? Citing examples, differentiate between opportunity cost, marginal cost, and relevant cost.
? Assess the relationship of marginal benefit and marginal costs. How is marginal benefit measured, and how does it relate to marginal costs?
? What other factors must managers address before making decisions? Why?

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