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Draw the decision tree of this complex situation.

The government of South Africa is considering the construction of a special hospital in order to effectively manage the
increasing demand for hospitalization of Covid19 patients in the Western Cape. If the medical demand is high (favorable
market for the hospital), the government could realize a net profit of R1000 000. If the market is not favorable, they
could lose R400 000. Of course, they don’t have to proceed at all, in which case there is no cost. In the absence of any
market data, the best the Government can guess is that there is a 50-50 chance the Hospital will be successful. Moreover,
the Government have been approached by a market research firm that offers to perform a study of the market at a fee of
R50 000. The market researchers claim their experience enables them to use Bayes’s theorem to make the following
statements of probability:
 Probability of a favorable market given a favorable study = 0.80
 Probability of a favorable market given an unfavorable study = 0.10
 Probability of an unfavorable market given an unfavorable study = 0.90
 Probability of a favorable study = 0.6
3.1) Set up the decision tables with probabilities.
3.2) Draw the decision tree of this complex situation.
3.3) Compute the EMV at each node.
3.4) What do you recommend?

Solution:

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