Question
how would i show this information in a decision tree? The EV for the new drug line is .71*4341*.63 + .29*1205*.63 = 2068.5 units. The
how would i show this information in a decision tree?
The EV for the new drug line is .71*4341*.63 + .29*1205*.63 = 2068.5 units.
The EV for the existing drug line is .63*5475*.48 + .37*1807*.48 = 2646.8 units.
The EV for making no changes is .81*730*.84 + .19*241*.84 = 598.4 units.
Explanation:
The expected value is the sum of the probability of each outcome multiplied by the value of that outcome. So, for the new drug line, the expected value is .71*4341 + .29*1205 = 2068.5 units. This means that if the new drug line is developed, there is a 71% chance that 4341 units will be demanded and a 29% chance that 1205 units will be demanded. Similarly, for the existing drug line, the expected value is .63*5475 + .37*1807 = 2646.8 units. This means that if the existing drug line is exploited for potential new applications, there is a 63% chance that 5475 units will be demanded and a 37% chance that 1807 units will be demanded. Finally, for making no changes, the expected value is .81*730 + .19*241 = 598.4 units. This means that if no changes are made, there is an 81% chance that 730 units will be demanded and a 19% chance that 241 units will be demanded.
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