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MSIS 212 P 1 05 Mngrl Decision Makng Spring 2025 Dec. Mak Midterm

Single choice

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 for the addition) 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 for the addition) 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 approach, what decision choice should they make and what is the expected value of that decision?

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We start by identifying the decision options and the associated profits under each market condition. - Large addition: High demand yields 100,000; Low demand yields -40,000. - Medium addition: High demand yields 40,000; Low demand yields -10,000. - Small addition: High demand yields 10,000; Low demand yields 5,......Login to view full explanation

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