Compare the primary strengths and weaknesses of cost-benefit analysis
Compare the primary strengths and weaknesses of cost-benefit analysis (CBA), cost-effectiveness analysis (CEA), and cost-utility analysis (CUA). Give your opinion on which method you believe to be the most effective in economic evaluation.Using the umbrella decision-making example on page 198 of the textbook, suppose the probability of rain is 0.6, the ruined clothes cost is $30, and the lost umbrella costs are $2. Come to a decision based upon these assumptions, and determine the break-even probability of rain.
Table 10-5 Revenues, Expenses, and Expected Payoffs for Clinic Renovation
| Alternative | State of the world (future demand forecasts) | Earnings | Renovation expense | Payoff |
| No Renovation/Do Nothing | 20 | $450,000 | 0 | $450,000 |
| No Renovation/Do Nothing | 20 | $450,000 | 0 | $450,000 |
| No Renovation/Do Nothing | 20 | $450,000 | 0 | $450,000 |
| Minor Renovation | 20 | $450,000 | $225,000 | $225,000 |
| Minor Renovation | 35 | $787,500 | $225,000 | $562,500 |
| Minor Renovation | 35 | $787,500 | $225,000 | $562,500 |
| Major Renovation | 20 | $450,000 | $700,000 | ($250,000) |
| Major Renovation | 35 | $787,500 | $700,000 | $87,500 |
| Major Renovation | 50 | $1,125,000 | $700,000 | $425,000 |
10-2
In the clinic renovation example, what if management thinks that the likelihood of current demand remaining is 30%, the likelihood of a moderate increase is 25%, and the likelihood of a large increase is 45%? What should they do, according to the expected total payoff?