1. An optometrist is considering opening a clinic.  If the optometrist opens a clinic as the single provider, she could get a profit of $200,000 if the market is favorable, but could lose $150,000 if the market is unfavorable.  The optometrist could also for a practice with other doctors and would gain a profit of $120,000 if the market is favorable, but lose only $50,000 if the market is unfavorable.  If theoptometrist decides not to open any kind of practice, there is no cost.  A market research firm offers to conduct a study at a fee of $25,000. They have used the Bayes’ theorem to make the following statements of probability:

P (favorable market | favorable study) = 0.78

                P (favorable market | unfavorable study) = 0.12

                P (favorable study) = 0.65

                P (favorable market) = 0.5

1. Calculate EMVs and draw a decision tree (20 pts)
2. Write out the recommended strategy (2 pts)
3. Calculate EVSI, how much the optometrist is be willing to pay for the study (3 pts)

Answer rating: 100% (QA)

a We are given here that EMV open clinic 20000005 15000005 25000 EMV practice with ... View the full answer