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Construction of a decision tree

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A group of medical professionals is considering the construction of a private clinic. If 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 the physicians can guess is that there is a 50-50 chance that 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

Solution constructs a decision tree to analyze the given situation of medical professionals.

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Please refer attached file for decision tree.

In the above decision tree, we start with a decision point denoted by a square. There are two possible actions

1. Construct a private clinic
2. Do not construct a private clinic

In case, we do not ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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