A group of Physicians must build an addition to their existing private clinic. They are considering three different sized additions: a small addition, a medium addition and a large addition. If the medical demand is high (there is a favorable market) they would realize a net profit of $100,000 with a large addition, a net profit of $40,000 with a medium addition and a net profit $10,000 with a small addition. If the medical demand is low (there is an unfavorable market) they would realize a net loss of $40,000 with the large addition, a net loss of $10,000 with the medium addition and a net profit of $5,000 with the small addition. The physicians have a reliable forecast indicating a 40% probability of the high medical demand. Using the expected monetary value, what should they do and what is the expected value of that decision?
A group of Physicians must build an addition to their existing private clinic. They are considering three different sized additions: a small addition, a medium addition and a large addition. If the medical demand is high (there is a favorable market) they would realize a net profit of $100,000 with a large addition, a net profit of $40,000 with a medium addition and a net profit $10,000 with a small addition. If the medical demand is low (there is an unfavorable market) they would realize a net loss of $40,000 with the large addition, a net loss of $10,000 with the medium addition and a net profit of $5,000 with the small addition. The physicians have a reliable forecast indicating a 40% probability of the high medical demand. Using the expected monetary value, what should they do and what is the expected value of that decision?
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
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
Transcribed Image Text:A group of Physicians must build an addition to their existing private clinic. They are considering three different sized additions: a small addition, a medium addition and a large addition. If the medical demand is high (there is a favorable market) they
would realize a net profit of $100,000 with a large addition, a net profit of $40,000 with a medium addition and a net profit of $10,000 with a small addition.
If the medical demand is low (there is an unfavorable market) they would realize a net loss of $40,000 with the large addition, a net loss of $10,000 with the medium addition and a net profit of $5,000 with the small addition. The physicians have a
reliable forecast indicating a 40% probability of the high medical demand. Using the expected monetary value, what should they do and what is the expected value of that decision?
a. $7,000 Small
b. $61,000 Small
c. $64,000 Large
d. $22,000 Medium
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