Question

What is the impact of statistical sampling in calculating the opportunity costs of firms?

Answer 1

the impact of statistical sampling in calculating the opportunity costs of firms

A benefit, profit, or value of something that must be given up to acquire or achieve something else. Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or decision has an associated opportunity cost

Benefits. Incurring opportunity costs is not inherently bad, as they do not detract from business decisions; instead, opportunity costs often enhance the decision-making process. Weighing opportunity costs allows the business to make the best possible decision.

Every time you make a choice, you're weighing the opportunity cost of that action. Opportunity costs extend beyond just the monetary costs of a decision, but it includes all real costs of making one choice over another, including the loss of time, energy and a derived pleasure/utility.

Statistical sampling. Sampling means testing less than 100% of the items in the population for some characteristic and then drawing a conclusion about that characteristic for the entire population. ... In sum, statistical sampling provides greater objectivity in the sample selection and in the audit conclusion.

Our goal is to minimize the E[OC] of a potentially incorrect selection. Doing so optimally and in full generality is a challenging optimization problem with an unknown solution. Inspired by the OCBA approach (which provides a heuristic that seeks to minimize a bound on the probability of correct selection, and where that bound is defined in a manner that is similar in spirit to the bounds and approximations in Section III above), we reduce E[OC] by sequentially minimizing the upper bound in Equation (2) , EEOC, for E[OC]. At each stage, we allocate additional samples in a manner that greedily reduces the EEOC as much as possible. That improvement is based upon a heuristic measure of the improvement in EEOC at each step that is justified by the development in Section III. The effect of running an additional few replications on the expected opportunity cost, EEOC, is estimated by: