a. Find the best location for the clinic using the following criterion i. Maximax (Optimistic) ii. Maximin (Pessimistic) iii. Equal likelihood (Laplace) iv. Minimax regret v. Expected value (EMV) b. Cognizant Consulting specializes in the expansion of medical firms. The consultants assert that they can determine whether demand for the medical facility’s services will be high or low at the proposed locations. They have offered to provide their services to MedStar Health for a $100,000 fee. i. Determine the EVPI (Expected Value of Perfect Information) for the firm’s services ii. Is the firm’s offer fair? Show work

a. Find the best location for the clinic using the following criterion i. Maximax (Optimistic) ii. Maximin (Pessimistic) iii. Equal likelihood (Laplace) iv. Minimax regret v. Expected value (EMV) b. Cognizant Consulting specializes in the expansion of medical firms. The consultants assert that they can determine whether demand for the medical facility’s services will be high or low at the proposed locations. They have offered to provide their services to MedStar Health for a $100,000 fee. i. Determine the EVPI (Expected Value of Perfect Information) for the firm’s services ii. Is the firm’s offer fair? Show work

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter5: Network Models

Section5.3: Assignment Models

Problem 10P

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Question

MedStar Health is expanding into Virginia. The firm must select one location where it can build a clinic to serve patients. The following table lists the expected profits for clinics in three locations depending on the numbers of patients utilizing the clinic.

The probability of high demand is 0.75 and of low demand 0.25.

Location

Payoff

High numbers of Patients

Low Numbers of Patients

Alexandria

Woodbridge

Leesburg

$1,500,000

$950,000

1,200,000

$600,000

$900,000

$200,000

a. Find the best location for the clinic using the following criterion

i. Maximax (Optimistic)

ii. Maximin (Pessimistic)

iii. Equal likelihood (Laplace)

iv. Minimax regret

v. Expected value (EMV)

b. Cognizant Consulting specializes in the expansion of medical firms. The consultants assert that they can determine whether demand for the medical facility’s services will be high or low at the proposed locations. They have offered to provide their services to MedStar Health for a $100,000 fee.

i. Determine the EVPI (Expected Value of Perfect Information) for the firm’s services

ii. Is the firm’s offer fair?

Show work

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