Instruction 17-3
the Following Payoff Table Shows Profits Associated with a Set

question 69

Multiple Choice

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3
-Referring to Instruction 17-3,if the probability of S1 is 0.2,what is the optimal decision using expected opportunity lost (EOL) ?

• A) A3
• B) A1
• C) A2
• D) It cannot be determined.

---

Definitions:

Contribution Margin

The amount remaining from sales revenue after variable expenses have been deducted, indicating how much revenue is available to cover fixed costs and generate profit.

Variable Costs

These are expenses that vary directly with the level of production or sales volume; they rise as production increases and fall as production decreases.

Contribution Margin Ratio

The percentage of sales revenue that remains after deducting variable costs, used to cover fixed costs and generate profit.

Variable Cost

Costs that change in proportion to the level of goods or services produced by a business.