A group of doctors is considering opening a private clinic. If the medical demand is high (i.e., there is a favorable ma

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A group of doctors is considering opening a private clinic. If
the medical demand is high (i.e., there is a favorable market for
the clinic), there is a net profit of $4,000,000. If the market is
not favorable, there is a loss of $800,000. Another option for the
group of doctors is to go into partnership with a hospital. Under
this scenario, there is a net profit of $1,500,000 if the market is
favorable and a loss of $200,000 if the market is not favorable. Of
course, they can decide not to proceed at all and do not incur any
cost.
a. What is the best decision under the maximax criterion? (3
points)
b. What is the best decision under the maximin criterion? (3
points)
c. What is the best decision under the minimax regret criterion?
(3 points)
d. Identify the range of the probability of the unfavorable
market such that the doctors will consider partnering with a
hospital when the expected value criterion is used. (5 points)
e. Suppose there is a 40% chance that the market will be
favorable. What is the optimal decision of the doctors? If there
exists a perfect forecast that can predict the status of market
with 100% accuracy, what will be the maximal price that doctors are
willing to pay to get this perfect forecast? (6 points)