Alpha Medical Alpha Medical designs and manufactures a variety of medical equipment devices and components. They have developed a new wireless pulse oximeter that is worn on a patient's nger to continuously measure their heart beat and can operate for over 24 hours on a single charge. Their revolutionary design is extremely power-efcient, and it has historically been the power requirement that prevented development of a wireless device. When Alpha Medical designs a new product, they have three ways to monetize it: 1. Launch the product themselves, which has the greatest prot potential but also the greatest risk of losing money. 2. License the technology to another company for a fee plus a small share of any prots. 3. Sell the technology to another company. There is signicant uncertainty about the market size for this new device, however, and could either be a very large (probability 0.7) or very small (probability 0.3). All of the currently used standard heart beat sensors must be physically connected to a monitor with a cable. The wireless sensor would reduce clutter by not needing the cable and could be used more consistently (the current wired sensors must often be removed to perform various activities). On the other hand, a wireless sensor would be easier to lose if it came off, and the hospital staff would need to make sure to regularly recharge the sensors. The decision tree for the decision to Launch, License, or Sell, with the payoffs for each, is shown below: To better understand the market for the new device, and thus the best way to monetize it, Alpha Medical is considering running a pilot study with a few hospitals to get feedback from medical staff and patients. The result of the pilot study would either be "Good" or "Bad": . If there is actually a large market for the wireless sensor, the result of the pilot study will be "Good" with probability 0.85. . If there is actually a small market for the wireless sensor, the result of the pilot study will be "Bad" with probability 0.80. Probability update P(Large Market) = 0.70 P(Good|Large) = 0.85 P(Small Market) = 0.30 P(Good|Small) = 0.20 P(Bad|Large) = 0.15 P(Bad|Small) = 0.80 Given "Good" Pilot Study Result P(Large) = 0.70 P(Good|Large) = 0.85 P(Good, Large) = 0.595 P(Large | Good) = 0.908 P(Small) = 0.30 P(Good|Small) = 0.20 P(Good, Small) = 0.060 P(Small|Good) = 0.092 P(Good) = 0.655 Given "Bad" Pilot Study Result P(Large) = 0.70 P(Bad|Large) = 0.15 P(Bad, Large) = 0.105 P(Large| Bad) = 0.304 P(Small) = 0.30 P(Bad|Small) = 0.80 P(Bad, Small) = 0.240 P(Small|Bad) = 0.696 P(Bad) = 0.3450.700 Large $20.00 $20.00 Best Market Launch $0.00 $12.50 0.300 Small -$5.00 -$5.00 Product Decision $12.50 0.700 Large $10.00 $10.00 Market License $0.00 $7.60 0.300 Small $2.00 $2.00 Sell $4.00 $4.00Question 16 Build a decision tree to evaluate the imperfect information of the pilot study. Make sure to use 2 decimal places in the tree. If the result of the pilot study is "Good" what should Alpha Medical do? 0 Sell 0 License 0 Launch Question 17 If the result of the pilot study is "Bad" what should Alpha Medical do? 0 Sell 0 License 0 Launch