Question: A group of medical professionals is considering constructing a private clinic. If the market is favorable, the physicians could get a net profit of $100,000. If the market is not favorable, they could lose $40,000. If they don't proceed at all, there is no cost. A market research firm offers to conduct a study at a fee of $5,000. They have used the Bayes' theorem to make the following statements of probability:
P(favorable market | favorable study) = .82
P(unfavorable market | favorable study) = .18
P(favorable market | unfavorable study) = .11
P(unfavorable market | unfavorable study) = .89
P(favorable study) =.55
P(unfavorable study) = .45
a. Develop a decision tree that includes the market study.
b. Use EMV to recommend a strategy.
c. Calculate EVSI or how much the physicians should be willing to pay for the market study.