Chapter 14, Problem 8QP

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 0.7 probability that the textbook will be successful. If successful, a profit of $210,000 will be realized. If the company decides to publish the textbook and it is unsuccessful, a loss of $50,000 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 unfavorable (U) evaluation of the manuscript. Past experience with the review process suggests that probabilities P(F) = 0.6 and P(U) = 0.4 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) = 0.15 P(s1 | U) = 0.465 P(s2 | F) = 0.85…

A real estate investor has the opportunity to purchase land currently zoned residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table:     State of Nature Rezoning Approved Rezoning Not Approved Decision Alternative S1 S2 Purchase, d1 590 -160 Do not purchase, d2 0 0     If the probability that the rezoning will be approved is 0.5, what decision is recommended?Recommended decision:    What is the expected profit?Expected profit: $  fill in the blank 2 The investor can purchase an option to buy the land. Under the option, the investor maintains the rights to purchase the land anytime during the next three months while learning more…

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 0.65 probability that the textbook will be successful. If successful, a profit of $750,000 will be realized. If the company decides to publish the textbook and it is unsuccessful, a loss of $250,000 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 unfavorable (U) evaluation of the manuscript. Past experience with the review process suggests that probabilities P(F) = 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) = 0.65                     P(s1 | U) =…