Olive Branch is a writer of romance novels. A movie company and a TV network both want exclusive rights to one of her most popular works. If she signs with the network she will receive a single lump sum, but if she signs with the movie company, the amount she will receive depends on the market response (box office) to the movie. Olive's payoffs are summarized: Box Office Small Medium Large Movie Company $200,000 1,000,000 3,000,000 TV network 900,000 900,000 900,000 Probability 0.3 0.6 0.1 1. Without any additional information, what is Olive’s best decision? Additionally, Olive may hire a market research firm to conduct a survey at a cost of $100,000. The result of the survey would be either a "F"avorable or an "U"nfavorable public response to the movie. The firm's historical accuracy, as measured by conditional probabilities is: P("F"|Small) = .3 P("U"|Small) = .7 P("F"|Medium) = .6 P("U"|Medium) = .4 P("F"|Large) = .8 P("U"|Large) = .2 A. Draw the decision tree for this problem B. What is Olive's best decision?
Olive Branch is a writer of romance novels. A movie company and a TV network both want exclusive rights to one of her most popular works. If she signs with the network she will receive a single lump sum, but if she signs with the movie company, the amount she will receive depends on the market response (box office) to the movie. Olive's payoffs are summarized:
Box Office
Small Medium Large
Movie Company $200,000 1,000,000 3,000,000
TV network 900,000 900,000 900,000
Probability 0.3 0.6 0.1
1. Without any additional information, what is Olive’s best decision?
Additionally, Olive may hire a market research firm to conduct a survey at a cost of $100,000. The result of the survey would be either a "F"avorable or an "U"nfavorable public response to the movie. The firm's historical accuracy, as measured by conditional probabilities is:
P("F"|Small) = .3 P("U"|Small) = .7
P("F"|Medium) = .6 P("U"|Medium) = .4
P("F"|Large) = .8 P("U"|Large) = .2
A. Draw the decision tree for this problem
B. What is Olive's best decision?
C. What is the most that Olive should be willing to pay for the survey results?
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