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You are the author of a new novel. You can choose to self-publish by making your own bsite to with the help of a local developer for a cost of $15,000, or you can sell them via existing publisher. There is a 10% chance the novel will be trending and sell 100,000 ies; but otherwise be a flop and sell only 6,000 copies. The publisher can produce at tribute copies at $10 each, will sell copies for $20 each and take a 50% cut of the profits. you choose to self-publish, you can produce and distribute copies for $12 each and must at a cheaper price of $18 to attract buyers (but keep all of the profit). ) Draw and evaluate a decision tree for this decision problem. Determine the best decision (based on the EMV criterion) and its value. ) What is the maximum you would pay for any information about whether the novel will become trending (i.e. the EVPI)?

You are the author of a new novel. You can choose to self-publish by making your own bsite to with the help of a local developer for a cost of $15,000, or you can sell them via existing publisher. There is a 10% chance the novel will be trending and sell 100,000 ies; but otherwise be a flop and sell only 6,000 copies. The publisher can produce at tribute copies at $10 each, will sell copies for $20 each and take a 50% cut of the profits. you choose to self-publish, you can produce and distribute copies for $12 each and must at a cheaper price of $18 to attract buyers (but keep all of the profit). ) Draw and evaluate a decision tree for this decision problem. Determine the best decision (based on the EMV criterion) and its value. ) What is the maximum you would pay for any information about whether the novel will become trending (i.e. the EVPI)?

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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3 (a) You are the author of a new novel. You can choose to self-publish by making your own website to with the help of a local developer for a cost of $15,000, or you can sell them via an existing publisher. There is a 10% chance the novel will be trending and sell 100,000 copies; but otherwise be a flop and sell only 6,000 copies. The publisher can produce at distribute copies at $10 each, will sell copies for $20 each and take a 50% cut of the profits. If you choose to self-publish, you can produce and distribute copies for $12 each and must sell at a cheaper price of $18 to attract buyers (but keep all of the profit). (i) Draw and evaluate a decision tree for this decision problem. Determine the best decision (based on the EMV criterion) and its value. (ii) What is the maximum you would pay for any information about whether the novel will become trending (i.e. the EVPI)? (b) Suppose you have the opportunity to hire a local literary critic to review your novel. Based on past surveys, 42% of trending novels have been liked by the critic, whereas 79% of flop novels have been disliked by the critic. (i) Assuming that the literary critic is worth hiring, draw and evaluate a decision tree to determine what subsequent actions would be taken. (ii) Calculate the EVSI and explain clearly what it means in this case.
Transcribed Image Text:3 (a) You are the author of a new novel. You can choose to self-publish by making your own website to with the help of a local developer for a cost of $15,000, or you can sell them via an existing publisher. There is a 10% chance the novel will be trending and sell 100,000 copies; but otherwise be a flop and sell only 6,000 copies. The publisher can produce at distribute copies at $10 each, will sell copies for $20 each and take a 50% cut of the profits. If you choose to self-publish, you can produce and distribute copies for $12 each and must sell at a cheaper price of $18 to attract buyers (but keep all of the profit). (i) Draw and evaluate a decision tree for this decision problem. Determine the best decision (based on the EMV criterion) and its value. (ii) What is the maximum you would pay for any information about whether the novel will become trending (i.e. the EVPI)? (b) Suppose you have the opportunity to hire a local literary critic to review your novel. Based on past surveys, 42% of trending novels have been liked by the critic, whereas 79% of flop novels have been disliked by the critic. (i) Assuming that the literary critic is worth hiring, draw and evaluate a decision tree to determine what subsequent actions would be taken. (ii) Calculate the EVSI and explain clearly what it means in this case.
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