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The physicians in Problem 3-34 have been approached by a market research firm that offers to perform a study of the market at a fee of $5,000. The market researchers claim their experience enables them to use Bayes' theorem to make the following statements of probability:

Probability of a favorable market given

A favorable study = 0.82

Probability of an unfavorable market given

A favorable study = 0.18

Probability of a favorable market given

An unfavorable study = 0.11

Probability of an unfavorable market given

An unfavorable study = 0.89

Probability of a favorable research

Study = 0.55

Probability of an unfavorable research

Study = 0.45

(a) Develop a new decision tree for the medical professionals to reflect the options now open with the market study.

(b) Use the EMV approach to recommend a strategy.

(c) What is the expected value of sample information? How much might the physicians be willing to pay for a market study?

Probability of a favorable market given

A favorable study = 0.82

Probability of an unfavorable market given

A favorable study = 0.18

Probability of a favorable market given

An unfavorable study = 0.11

Probability of an unfavorable market given

An unfavorable study = 0.89

Probability of a favorable research

Study = 0.55

Probability of an unfavorable research

Study = 0.45

(a) Develop a new decision tree for the medical professionals to reflect the options now open with the market study.

(b) Use the EMV approach to recommend a strategy.

(c) What is the expected value of sample information? How much might the physicians be willing to pay for a market study?

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