a. Find the best location for the clinic using the following criterion i. Maximax (Optimistic) ii. Maximin (Pessimistic) iii. Equal likelihood (Laplace) iv. Minimax regret v. Expected value (EMV) b. Cognizant Consulting specializes in the expansion of medical firms. The consultants assert that they can determine whether demand for the medical facility’s services will be high or low at the proposed locations. They have offered to provide their services to MedStar Health for a $100,000 fee. i. Determine the EVPI (Expected Value of Perfect Information) for the firm’s services ii. Is the firm’s offer fair? Show work
MedStar Health is expanding into Virginia. The firm must select one location where it can build a clinic to serve patients. The following table lists the expected profits for clinics in three locations depending on the numbers of patients utilizing the clinic.
The probability of high demand is 0.75 and of low demand 0.25.
|
Location |
Payoff |
|
|
High numbers of Patients |
Low Numbers of Patients |
|
|
Alexandria Woodbridge Leesburg |
$1,500,000 $950,000 1,200,000 |
$600,000 $900,000 $200,000 |
a. Find the best location for the clinic using the following criterion
i. Maximax (Optimistic)
ii. Maximin (Pessimistic)
iii. Equal likelihood (Laplace)
iv. Minimax regret
v. Expected value (EMV)
b. Cognizant Consulting specializes in the expansion of medical firms. The consultants assert that they can determine whether demand for the medical facility’s services will be high or low at the proposed locations. They have offered to provide their services to MedStar Health for a $100,000 fee.
i. Determine the EVPI (Expected Value of Perfect Information) for the firm’s services
ii. Is the firm’s offer fair?
Show work
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