A group of medical professionals is considering the construction of a private clinic. If the medical de-mand is high (i.e., there is a favorable market for the clinic), the physicians could realize a net profit of $100,000. If the market is not favorable, they could lose $40,000. Of course, they don’t have to proceed at all, in which case there is no cost. In the absence of any market data, the physicians’ best guess is that there is a 50–50 chance the clinic will be successful. Construct a decision tree to help analyze this problem. What should the medical professionals do?

A group of medical professionals is considering the construction of a private clinic. If the medical de-mand is high (i.e., there is a favorable market for the clinic), the physicians could realize a net profit of $100,000. If the market is not favorable, they could lose $40,000. Of course, they don’t have to proceed at all, in which case there is no cost. In the absence of any market data, the physicians’ best guess is that there is a 50–50 chance the clinic will be successful. Construct a decision tree to help analyze this problem. What should the medical professionals do?

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 21P

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3-36 A group of medical professionals is considering the construction of a private clinic. If the medical demand is high (i.e., there is a favorable market for the clinic), the physicians could realize a net profit of $100,000. If the market is not favorable, they could lose $40,000. Of course, they don’t have to proceed at all, in which case there is no cost. In the absence of any market data, the physicians’ best guess is that there is a 50–50 chance the clinic will be successful. Construct (Draw) a small decision tree from this problem, do the calculations/decisions, and highlight the final decision of the medical professionals.
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