Question

Discuss the difference between a point estimate and a cost probability distribution. Why might you choose to use one over the other?

Answer 1

Point estimate is a single value obtained from the sample statistic used to estimate the unknown population cost.

Cost probability distribution is the cost expressed as a probability distribution.

We choose the point estimate of the unknown population cost is situations where we require just a single value to represent the population cost.For example, for situation where we want to choose among competing alternatives for the lowest cost, it is easier to deal with single value for cost of each alternative rather than a range of values for each alternative.

Cost probability distribution is adopted when we want to study the variation exhibited by the costs of alternatives depending upon the different distributions such as Normal Distribution, Triangular Distribution etc. using statistical models available for the same.