Strengths and weaknesses of cost-benefit analysis

Discuss the below:

Compare the primary strengths and weaknesses of cost-benefit analysis (CBA), cost-effectiveness analysis (CEA), and cost-utility analysis (CUA). Give your opinion on which method you believe to be the most effective in economic evaluation.

• Using the umbrella decision-making example on page 198 of the textbook, suppose the probability of rain is 0.6, the ruined clothes cost is \$30, and the lost umbrella costs are \$2. Come to a decision based upon these assumptions, and determine the break-even probability of rain.

Table  Revenues, Expenses, and Expected Payoffs for Clinic Renovation

 Alternative State of the world (future demand forecasts) Earnings Renovation expense Payoff No Renovation/Do Nothing 20 \$450,000 0 \$450,000 No Renovation/Do Nothing 20 \$450,000 0 \$450,000 No Renovation/Do Nothing 20 \$450,000 0 \$450,000 Minor Renovation 20 \$450,000 \$225,000 \$225,000 Minor Renovation 35 \$787,500 \$225,000 \$562,500 Minor Renovation 35 \$787,500 \$225,000 \$562,500 Major Renovation 20 \$450,000 \$700,000 (\$250,000) Major Renovation 35 \$787,500 \$700,000 \$87,500 Major Renovation 50 \$1,125,000 \$700,000 \$425,000

In the clinic renovation example, what if management thinks that the likelihood of current demand remaining is 30%, the likelihood of a moderate increase is 25%, and the likelihood of a large increase is 45%? What should they do, according to the expected total payoff?

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