BUSINESS CHOICES

Question 1

WHAT IS AN OPPORTUNITY COST? GIVE EXAMPLES

Answer 1

The benefit lost from the next best alternative.

Question 2

GIVE EXAMPLES OF OPPORTUNITY COSTS

Answer 2

1. The benefits lost from launching a new advertising campaign instead of investing in employee training
2. The benefits lost from developing a new product instead of increasing production of an existing successful product
3. The benefits lost from purchasing a new vehicle instead of upgrading IT facilities.

Question 3

WHAT IS NON-MONETARY OPPORTUNITY COST?

Answer 3

Often opportunity cost cannot be calculated in financial terms. It is frequently not possible to calculate the monetary value of a decision if the choice has an impact on brand awareness, employee morale or good will.

Question 4

WHAT ARE TRADE OFFS?

Answer 4

A trade- off will often involve the loss or compromise of another option or factor.

Question 5

WHAT IS AN EXAMPLE OF A TRADE OFF?

Answer 5

Improving productivity in a factory may lower the quality of the products being made (e.g. increasing the number of defects).

Question 6

HOW DOES A BUSINESS WEIGH UP ITS OPTIONS?

Answer 6

1. Comparing advantages and disadvantages of each option based on the info available from research
2. Balance short-term gains with long-term benefits
3. The probability of success
4. How popular a decision is may influence a certain course of action
5. Risk vs. reward - some businesses may avoid high-risk strategies even if the rewards are huge, others may be more willing to take them
6. Investment appraisal

Question 7

WHY MIGHT A BUSINESS SURVEY ITS STAKEHOLDERS BEFORE MAKING A KEY DECISION?

Answer 7

Because they care about the impact those decisions may have on stakeholders. Any decision is likely to be successful if it is based on the perspectives of all stakeholders.