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(b) Assuming the manuscript review process is free, using the expected value approach, determine the optimal decision strategy. Always reject.Always accept.    Do not review, and accept.Review, and then accept if favorable or reject if unfavorable.Review, and then always accept. (c) If the manuscript review costs $5,000, what is your recommendation? Always reject.Always accept.    Do not review, and accept.Review, and then accept if favorable or reject if unfavorable.Review, and then always accept. (d) What is the expected value of perfect information (in $)? EVPI = $  What does this EVPI suggest for the company? This EVPI suggest a better procedure for assessing the market potential for the textbook may be

(b) Assuming the manuscript review process is free, using the expected value approach, determine the optimal decision strategy. Always reject.Always accept.    Do not review, and accept.Review, and then accept if favorable or reject if unfavorable.Review, and then always accept. (c) If the manuscript review costs $5,000, what is your recommendation? Always reject.Always accept.    Do not review, and accept.Review, and then accept if favorable or reject if unfavorable.Review, and then always accept. (d) What is the expected value of perfect information (in $)? EVPI = $  What does this EVPI suggest for the company? This EVPI suggest a better procedure for assessing the market potential for the textbook may be

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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(b)
Assuming the manuscript review process is free, using the expected value approach, determine the optimal decision strategy.
Always reject.Always accept.    Do not review, and accept.Review, and then accept if favorable or reject if unfavorable.Review, and then always accept.
(c)
If the manuscript review costs $5,000, what is your recommendation?
Always reject.Always accept.    Do not review, and accept.Review, and then accept if favorable or reject if unfavorable.Review, and then always accept.
(d)
What is the expected value of perfect information (in $)?
EVPI = $ 
What does this EVPI suggest for the company?
This EVPI suggest a better procedure for assessing the market potential for the textbook may be     
Decision Tree Description Success 850 Аcсеpt Failure -150 Favorable Reject 0 Review Success 850 Acсеpt Failure -150 Unfavorable Reject Success - 850 Accept Failure Do Not Review Reject
Transcribed Image Text:Decision Tree Description Success 850 Аcсеpt Failure -150 Favorable Reject 0 Review Success 850 Acсеpt Failure -150 Unfavorable Reject Success - 850 Accept Failure Do Not Review Reject
Embassy Publishing Company received a six-chapter manuscript for a new college textbook. The editor of the college division is familiar with the manuscript and estimated a 0.7207 probability that the textbook will be successful. If successful, a profit of $850,000 will be realized. If the company decides to publish the textbook and it is unsuccessful, a loss of $150,000 will occur. Before making the decision to accept or reject the manuscript, the editor is considering sending the manuscript out for review. A review process provides either a favorable (F) or an unfavorable (U) evaluation of the manuscript. Past experience with the review process suggests probabilities P(F) = 0.7 and P(U) = 0.3 apply. Let s, = the textbook is successful, and s2 = the textbook is unsuccessful. The editor's initial probabilities of s, and s, will be revised based on whether the review is favorable or unfavorable. The revised probabilities are as follovws: P(s, IF) = 0.85 P(s,IF) = 0.15 P(s, IU) = 0.419 P(s,lU) = 0.581 (a) Construct a decision tree assuming that the company will first make the decision of whether to send the manuscript out for review and then the decision to accept or reject the manuscript. (For each blank, enter the probability associated with the event.)
Transcribed Image Text:Embassy Publishing Company received a six-chapter manuscript for a new college textbook. The editor of the college division is familiar with the manuscript and estimated a 0.7207 probability that the textbook will be successful. If successful, a profit of $850,000 will be realized. If the company decides to publish the textbook and it is unsuccessful, a loss of $150,000 will occur. Before making the decision to accept or reject the manuscript, the editor is considering sending the manuscript out for review. A review process provides either a favorable (F) or an unfavorable (U) evaluation of the manuscript. Past experience with the review process suggests probabilities P(F) = 0.7 and P(U) = 0.3 apply. Let s, = the textbook is successful, and s2 = the textbook is unsuccessful. The editor's initial probabilities of s, and s, will be revised based on whether the review is favorable or unfavorable. The revised probabilities are as follovws: P(s, IF) = 0.85 P(s,IF) = 0.15 P(s, IU) = 0.419 P(s,lU) = 0.581 (a) Construct a decision tree assuming that the company will first make the decision of whether to send the manuscript out for review and then the decision to accept or reject the manuscript. (For each blank, enter the probability associated with the event.)
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