19. 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 $100,000. Hale's decision alternatives and profits (in thousands of dollars) are as follows: State of Nature 1 Year, 5₂ Decision Alternative Reject, $₁ 2 Years, 53 Produce pilot, d -100 50 150 Sell to competitor, d₂ 100 100 100 The probabilities for the states of nature are P(s) = 0.20, P(s) = 0.30, and P(s) = 0.50. For a consulting fee of $5000, 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 an unfavorable (U) review and that the fol- lowing probabilities are relevant: P(F) = 0.69 P(U) = 0.31 P(s) F) = 0.09 P(52|F) = 0.26 P(S₁U) = 0.45 P(52 | U) = 0.39 P(S3F) = 0.65 P(S3 | U) = 0.16 a. Construct a decision tree for this problem. b. What is the recommended decision if the agency opinion is not used? What is the ex- pected value? c. What is the expected value of perfect information? d. What is Hale's optimal decision strategy assuming the agency's information is used? e. What is the expected value of the agency's information? f. Is the agency's information worth the $5000 fee? What is the maximum that Hale should be willing to pay for the information? - What is the recommended decision?
19. 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 $100,000. Hale's decision alternatives and profits (in thousands of dollars) are as follows: State of Nature 1 Year, 5₂ Decision Alternative Reject, $₁ 2 Years, 53 Produce pilot, d -100 50 150 Sell to competitor, d₂ 100 100 100 The probabilities for the states of nature are P(s) = 0.20, P(s) = 0.30, and P(s) = 0.50. For a consulting fee of $5000, 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 an unfavorable (U) review and that the fol- lowing probabilities are relevant: P(F) = 0.69 P(U) = 0.31 P(s) F) = 0.09 P(52|F) = 0.26 P(S₁U) = 0.45 P(52 | U) = 0.39 P(S3F) = 0.65 P(S3 | U) = 0.16 a. Construct a decision tree for this problem. b. What is the recommended decision if the agency opinion is not used? What is the ex- pected value? c. What is the expected value of perfect information? d. What is Hale's optimal decision strategy assuming the agency's information is used? e. What is the expected value of the agency's information? f. Is the agency's information worth the $5000 fee? What is the maximum that Hale should be willing to pay for the information? - What is the recommended decision?
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ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
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Transcribed Image Text:[19. 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 $100,000. Hale's decision alternatives and
profits (in thousands of dollars) are as follows:
State of Nature
1 Year, 8₂
Decision Alternative
Reject, 81
2 Years, 53
Produce pilot, d
50
150
-100
100
Sell to competitor, d₂
100
100
The probabilities for the states of nature are P(s) = 0.20, P(s) = 0.30, and P(s) = 0.50.
For a consulting fee of $5000, 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 an unfavorable (U) review and that the fol-
lowing probabilities are relevant:
P(SF) = 0.09
P(SU)= 0.45
P(F) = 0.69
P(U) = 0.31
P(52|F) = 0.26
P($2 | U) = 0.39
P(ss | F) = 0.65
P(83 | U) = 0.16
a. Construct a decision tree for this problem.
b. What is the recommended decision if the agency opinion is not used? What is the ex-
pected value?
c. What is the expected value of perfect information?
d. What is Hale's optimal decision strategy assuming the agency's information is used?
e. What is the expected value of the agency's information?
f. Is the agency's information worth the $5000 fee? What is the maximum that Hale
should be willing to pay for the information?
g. What is the recommended decision?
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