Hale's TV Productions is considering producing a pilot for a comedy series in the hope of selling it to a major television network. The network may decide to reject the series, but it may also decide to purchase the rights to the series for either one or two years. At this point in time, Hale may either produce the pilot and wait for the network's decision or transfer the rights for the pilot and series to a competitor for $250,000. Hale's decision alternatives and profits (in thousands of dollars) are as follows: State of Nature
Decision Alternative Reject, S1 1 Year, S2 2 Years, S3 Produce pilot, d1 -150 50 450 Sell to competitor, d2 250 250 250 The probabilities for the states of nature are P(S1)=0.20, P(s2)=0.30, AND P(s3)=0.50. FOR ACONSULTING FEE OF $5,000.00, AN AGENCY WILL REVIEW THE PLANS FOR THE COMEDY SERIES AND INDICATE THE OVERALL CHANCES OF A FAVORABLE NETWORK REACTION TO THE SERIES. ASSUME THAT THE AGENCY REVIEW WILL RESULT IN A FAVORABLE (F) OR UNFAVORABLE (U) REVIEW AND THAT THE FOLLOWING PROBABLITIES ARE RELEVANT:
P(F/S1)=0.3105 P(U/S1)=0.6975
P(F/S2)=0.5980 P(U/S2)=0.4030
P(F/S3)=0.8970 P(U/S3)=0.0992
a) CONSTRUCT A DECSION TREE
b) WHAT IS THE RECOMMNEDED DECSION IF AGENCY IS NOT USED? WHAT IS THE EXPECTED VALUE?
c) WHAT IS THE EXPECTED VALUE OF PERFECT INFORMATION?
d) WHAT IS HALE’S OPTIMAL DECISION STRATEGY ASSUMING THE AGENCYS INFO IS USED?
e) WHAT IS THE EXPECTED VALUE OF THE AGENCYS INFO?
f) IS THE AGENCY INFO WORTH THE FEE OF $5,000.00? WHAT IS THE MAXIMUM HALE SHOULD BE WILING TO PAY FOR THE INFO?
g) WHAT IS THE RECOMMENDED DECISION?