Problem -
Leah Johnson, director of Urgent Care of Brookline, wants to increase capacity to provide low-cost flu shots but must decide whether to do so by hiring another full-time nurse or by using part-time nurses. The table below shows the expected costs of the two options for three possible demand levels:
|
|
States of Nature
|
|
Alternatives
|
Low Demand
|
Medium Demand
|
High Demand
|
|
Hire full-time
|
$300
|
$500
|
$700
|
|
Hire part-time
|
$0
|
$350
|
$1,000
|
|
Probabilities
|
.2
|
.5
|
.3
|
a) Using expected value, what should Ms. Johnson do?
b) Draw an appropriate decision tree showing payoffs and probabilities.