Part one: Cipla / Quality Chemicals (CiplaQCI) that produces medicine combinations, has developed a promising new product for malaria treatment called Lumartem.

The firm's management faces three choices:

i. It can sell the idea of the new medicine product to a company for $30,000,

ii. it can hire a consultant to study the market and then make a decision,

iii. or it can mobilize resources to build a factory block and then manufacture and market the medicine.

The study will cost CiplaQCI $15,000, and its management believes that there is about a 80:20 chance that a favorable market will be found. If the study were unfavorable, management figures out that it could sell the idea for $18,000. if the study were favorable, it figures that it could sell the idea for $60,000. But even if a favorable market is found, the chance of an ultimately successful product is about 5 out of 10. A successful product will return $750,000. Even with an unfavorable study, a successful product can be expected approximately three times in every ten new-product introductions.

If CiplaQCI's management decides to manufacture the product without a study, there is only a 3-in-4 chance of it being successful.

A product failure would cost $150,000. Using the decision tree analysis, what choice should the management of CiplaQCI take? Show how you arrived at your answer.

Part two:

Name any four activities in the healthcare industry that are usually involved in long-range capacity planning decisions.