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 the physicians can guess is that there is a 50-50 cancel the clinic will be successful.
Construct a decision tree by fill-in the blanks below in reference to the following chart.
The decision choice at Decision 1 is and that at Decision 2 is Event 1 is an Event 2 is.
The probability for Prob1 is and that for Prob2 is.
Payoff 1 is and Payoff 2 is.
EMV 1 is and EMV 2 is.