If the medical demand ishigh there is favorable mariet for

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Reference no: EM13615885

A group of medical professionals is cosidering theconstruction of a private clincic. If the medical demand ishigh (there is favorable mariet for clincics0) the physicians couldrealize a net profit of 100,000 if the market is not favorable theycould lose 40,000 or should they proceed at all in which casethere is no cost. In the absence of any market data the best thephysicias can guess that there is a 50 50 chancne the clincic willbe successful. Medical professionals have been approached by a research teamthat offers to perform a strudy of the market at a fee of5,000 the maarket researchers claim their experience enables themto use bayes theorem to make the followig stataements ofprobablity:

Probalbility of a favorable market givern
favorable study- 0.82
probability of unfavorable market gi ven\
a favorable study=0.18
p of a favorable market givenn
unfavorable study=0.11
p of a a unfavorable market given
an unfavorable research = 0.89
p of a favorable research
study=0.55
p of an unfavorable research
study=0.45

a) Develop a new decision tree for the medical professioals toreflect the options now open with the market study

b) Use the EMV approach to recommed a strategy

c) What is the expected value of sample information? How much might the physicians be willing to pay for a mazarket study?

Reference no: EM13615885

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