What would a pessimist recommend

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Reference no: EM133485077

Problem

The Baptist Hospital administrator is trying to determine whether to build a large wing onto the existing hospital, or a small wing, or no wing at all. If the population of Jacksonville continues to grow, a large wing could return $250,000 to the hospital each year, while a small wing would return $100,000. If the population of Jacksonville remains the same, the hospital would encounter a loss of $140,000 if the large wing were built and would lose $75,000 if a small wing were built. If no wing is built, the return would be zero regardless of the population change. The census bureau estimates a 70% probability of population growth and a 30% probability of no change in the population. Set up a complete decision table (with probabilities) and answer the following:

Answer the following questions:

Question I. What would an optimist recommend? Large wing

Question II. What would a pessimist recommend? No wing

Question III. What is the MiniMax Regret decision? Small wing

Question IV. Utilizing the probabilities of population growth and stagnation, what decision is recommended?

Question V. What would be the value of knowing the future of the market (i.e., if you could have inside information about what will happen to the population size, what is the most it would be worth in regards to the decision to build a wing)?

Reference no: EM133485077

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