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 s1 = the textbook is successful, and s2 = the textbook is unsuccessful. The editor's initial probabilities of s1 and s2 will be revised based on whether the review is favorable or unfavorable. The revised probabilities are as follows: P(s1|F) = 0.85 P(s2|F) = 0.15 P(s1|U) = 0.419 P(s2|U) = 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.

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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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

s₁ = the textbook is successful,

and

s₂ = the textbook is unsuccessful.

The editor's initial probabilities of s₁ and s₂ will be revised based on whether the review is favorable or unfavorable. The revised probabilities are as follows:

P(s₁|F) = 0.85
P(s₂|F) = 0.15

P(s₁|U) = 0.419
P(s₂|U) = 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.