Kristoffersen's Bodyguards (KBG) is a bodyguard service that takes on assignments to protect important persons of interest (VPIs). In Norway, this is a rather unstable profession in terms of capacity, and KBG must strategically choose between assignments not only to maximize its income, but also its reputation. It's election season and many political leaders are in the market for extra protection. Christian People's Party leader Knut Arild Hareide makes an offer to KBG to give him full protection 24/7 during the election month for NOK 550,000. KBG will then use 100% of its resources for this mission. Costs associated with this assignment are estimated at NOK 300,000 (salary, use of bulletproof vest, cool sunglasses, etc.). Alternatively, KBG can accept several smaller assignments in the same period. This means that KBG ends up with spare capacity and pays NOK 85,000 in wages to bodyguards who do not have assignments. The assignments that are implemented will lead to an income of NOK 320,000, and a cost of NOK 215,000.

1. What is the opportunity cost of accepting the offer from Knut Arild Hareide? The answer is given without denomination and without decimals.

One of the most important customer segments for KBG's services are people in the criminal gray zone. They often need protection to and from court proceedings, and at large public events where they are afraid of assassination by other criminals. KBG boss Kris Kristoffersen acknowledges that great damage will be caused to KBG's reputation in this environment by being seen in public with Knut Arild Hareide for a whole month.

2. How large must this cost be for it to no longer be profitable to accept the offer? The answer is given without denomination and without decimals.

The Coastal Party has achieved political success with its agenda of extending the Norwegian coast. They therefore also want to hire KBG's services during the critical election month. They do not have quite as many resources as KrF, but come with a solid offer of NOK 450,000 for KBG's full capacity. Then again the same costs of NOK 300,000 will be incurred. KBG will otherwise not incur any damage to its reputation by being seen in public with the coastal party's leader for a month.

3. How much does Rennommeet have to be damaged by accepting the offer from KrF in order for it not to be profitable to accept Knut Arild Hareide's offer now? The answer is given without denomination and without decimals.

Answer rating: 100% (QA)

1 The opportunity cost of accepting the offer from Knut Arild Hareide can be calculated by comparing the income from the alternative smaller assignmen... View the full answer