The physicians in Problem 3-36 have been approached by a market research firm that offers to perform a study of the market at a fee of $5,000. The market researchers claim their experience enables them to use Bayes’ Theorem to make the following statements of probability:

Probability of a favorable market given a favorable study = 0.82 Probability of an unfavorable market given a favorable study = 0.18 Probability of a favorable market given an unfavorable study = 0.11 Probability of an unfavorable market given an unfavorable study = 0.89 Probability of a favorable research study = 0.55 Probability of an unfavorable research study = 0.45

(a) Develop a new decision tree for the medical professionals to reflect the options now open with the market study.

(b) Use the EMV approach to recommend a strategy.

(c) What is the expected value of sample information?

How much might the physicians be willing to pay for a market study?

(d) Calculate the efficiency of this sample information.