Construct a decision tree of the above situation clearly identifying the decision and chance nodes. b) What are the expected payoffs for each decision and what would be your recommendation to Ellen? c) If Ellen had the relevant information on all the possibilities, what would be her expected payoff? d) What price would you recommend she pays to acquire the additional relevant information?
Ellen is a leading comedian in the USA. A movie producing company and a TV network both want exclusive rights to her latest comedy series. The TV network is willing to pay a single lump sum, but if she signed with the movie company, the sum she receives will depend on how the market responds to her series. The network is willing to pay a flat $900,000-00. The movie company is prepared to pay $200,000-00, $1,001, 000-00, and $3,000,000-00 for a ‘Minimal Hit’, ‘Average Hit’, and ‘Massive Hit’, respectively. The statisticians are
Required:
a) Construct a decision tree of the above situation clearly identifying the decision and chance nodes.
b) What are the expected payoffs for each decision and what would be your recommendation to Ellen?
c) If Ellen had the relevant information on all the possibilities, what would be her expected payoff?
d) What price would you recommend she pays to acquire the additional relevant information?
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