One Local Hospital Has Just Enough Space and Funds Currently

question 113

Multiple Choice

One local hospital has just enough space and funds currently available to start either a cancer or heart research lab. If administration decides on the cancer lab, there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year, and an 80 percent chance of getting nothing. If the cancer research lab is funded the first year, no additional outside funding will be available the second year. However, if it is not funded the first year, then management estimates the chances are 50 percent it will get $100,000 the following year, and 50 percent that it will get nothing again. If, however, the hospital's management decides to go with the heart lab, then there is a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year and a 50 percent change of getting nothing. If the heart lab is funded the first year, management estimates a 40 percent chance of getting another $50,000 and a 60 percent chance of getting nothing additional the second year. If it is not funded the first year, then management estimates a 60 percent chance for getting $50,000 and a 40 percent chance for getting nothing in the following year. For both the cancer and heart research labs, no further possible funding is anticipated beyond the first two years. What is the expected value for the decision alternative to select the cancer lab?

• A) $100,000
• B) $60,000
• C) $50,000
• D) $40,000
• E) $20,000

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Definitions:

68-95-99.7 Rule

A statistical rule stating that for a normal distribution, approximately 68% of data values fall within one standard deviation of the mean, 95% within two standard deviations, and 99.7% within three standard deviations.

Natural Tolerances

The inherent variability found within a natural process or system's parameters.

Normal Distribution

It is characterized by a symmetric shape around the mean, where data samples are more densely populated close to the mean and less so the farther they are from it.

Inside Diameter

The measure of the distance across the innermost part of a hollow object or space.