What are the steps involved in optimization in levels? If option A has a cost of $5 and provides a benefit of $8, and option B has a cost of $10 and provides a benefit of $15, which of the two projects is optimal?
What will be an ideal response?
The steps involved in optimization in levels are:
a) Translate all costs and benefits into common units, like dollars.
b) Calculate the total net benefit of each alternative.
c) Pick the alternative with the highest net benefit.
Total net benefit in option A = $(8 - 5 ) = $3
Total net benefit in option B = $(15 - 10 ) = $5
Because option B has a higher net benefit than option A, option B is the optimal choice of the two.
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