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PROBLEM 1. A CEO of a multihospital system is planning to expand operations into various states. It will take several years to get certificate of

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PROBLEM 1. A CEO of a multihospital system is planning to expand operations into various states. It will take several years to get certificate of need (CON) approvals so that the new facilities can be constructed. The eventual cost (in million dollars) of building a facility will differ among states, depending upon finances, labor, and the economic and political climate. An outside consulting firm estimated the future costs for the new facilities as based on declining, similar, or improving national economies, and the associated probabilities as shown in the following table. State 0.25 0.40 0.35 Kentucky 22 19 1 5 Maryland 19 19 18 North Caroljna Tennessee Virginia a. Calculate the expected monetary cost for potential building in each state. If the CEO wants to plan expansion in two new states, which should he choose, and what is the expected total cost? b. The CEO is uneasy with the limited data, and wants to figure out how much the company should be willing to pay for additional information. Calculate the expected value of perfect information for this problem. (Hint: You must first calculate the expected monetary value [cost in this case) under perfect information - which two states would you build in if you know whether the national economy will decline, remain stable, or improve?) PROBLEM 2. Among your responsibilities at Kudley Memorial Hospital for Children is setting the staffing level in the patient transport unit. The personnel manager has said that you can have either three or four full-time positions. Each full-time person works eight hours per day. The number of patients that need to be transported each day allows the following distribution: Number of Patients Probability 1 5 0.2 20 0.5 25 0.3 The number of hours of transport time required per day is random and has a probability distribution that depends upon the number of patients as follows: Number of Hours Probability if Number of Patients is: per day 15 20 25

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