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    Decision Tree for Starting a Private Clinic

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    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 best physicians can 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?

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    Solution Summary

    The solution provides a decision tree diagram with each branch explained, using calculations to justify the choices where necessary, and thus leads the reader through to the logical conclusion.