Problem 1: A government committee is considering the economic benefits of a program of preventative flu vaccinations. We will assume that the flu vaccine is completely effective so if the vaccine is implemented, there will be no flu cases. It is estimated that a vaccination program will cost $9 million and that the probability of flu striking in the next year is 0.70. If vaccinations are not introduced then the estimated cost to the government if flu strikes in the next year is $7 million with probability 0.15, $10 million with probability 0.25 and $15 million with probability 0.6. One alternative open to the committee is to institute an "early-warning" monitoring scheme (costing $3 million) which will enable it to detect an outbreak of flu early and therefore decide whether or not to institute a rush vaccination program (costing $12 million because of the need to vaccinate quickly before the outbreak spreads, again with the vaccine being completely effective) or to do nothing with the costs and probabilities listed previously for a flu strike. a) Create a decision tree for this scenario, making sure you label all branches and include all probabilities and consequences. b) Solve the decision tree using EMV and state what recommendations should the committee make to the government.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 30P

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Problem 1: A government committee is considering the economic benefits of a program of preventative flu vaccinations. We will assume that the flu vaccine is completely effective so if the vaccine is implemented, there will be no flu cases. It is estimated that a vaccination program will cost $9 million and that the probability of flu striking in the next year is 0.70. If vaccinations are not introduced then the estimated cost to the government if flu strikes in the next year is $7 million with probability 0.15, $10 million with probability 0.25 and $15 million with probability 0.6. One alternative open to the committee is to institute an "early-warning" monitoring scheme (costing $3 million) which will enable it to detect an outbreak of flu early and therefore decide whether or not to institute a rush vaccination program (costing $12 million because of the need to vaccinate quickly before the outbreak spreads, again with the vaccine being completely effective) or to do nothing with the costs and probabilities listed previously for a flu strike. a) Create a decision tree for this scenario, making sure you label all branches and include all probabilities and consequences. b) Solve the decision tree using EMV and state what recommendations should the committee make to the government.

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