question archive 2) Bastarache TV Productions is considering producing a pilot for a comedy series for the MS television network
2) Bastarache TV Productions is considering producing a pilot for a comedy series for the MS television network
Subject:Project ManagementPrice:6.86 Bought14
2) Bastarache TV Productions is considering producing a pilot for a comedy series for the MS television network. MS may reject the pilot and the series, but it may also purchase the program for one or two years. Bastarche may decide to produce the pilot or transfer the results for the series to a competitor (OBTV) for $100,000. Bastarache's profits (in '000s) are summarized in the following table:
State of Nature
Decision Alternative
Produce Pilot
reject = -100
year 1 = 50
year 2 = 150
Sell to competitor
reject = 100
year 1 = 100
year 2 = 100
a. The probability estimates for the states of nature are P(reject) = .2, P(1 year) = .3 and P(2 years) = .5. What should Bastarache do?
b. What is the maximum Bastarache should be willing to pay for inside information on what MS will decide?
Continuing on from problem 2: For a consulting fee of $2500, Bowra, Bryden and Associates will review the plans for the comedy series and indicate the overall chances of a favourable network reaction to the series. Bastarache believes that the following conditional probabilities are realistic appraisals of BB&A:
P(Favourable| Reject) = 0.3
P(Favourable| 1 Year) = 0.6
P(Favourable| 2 Year) = 0.9
P(Unfavourable| Reject) = 0.7
P(Unfavourable| 1 year) = 0.4
P(Unfavourable| 2 Year) = 0.1
If the special agency review results in a favourable (I1) or unfavourable (I2) rating, what should Bastarache's decision strategy be?
c. Represent this problem as a decision tree.
d. What is the recommended decision strategy and the expected value, assuming that the agency information is obtained?
e. What is the expected value of this sample information? What is the maximum that Bastarache should be willing to pay for this information?
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solution.
A)Bastaraches should sell to the competitor .i.e. based on the maximum expected value.
B)Expected value with perfection information (EVwPI)=max(-100,100)*0.2+max(50,100)*0.3+max(150.100)*0.5= 125
Expected value without perfection=(EVW/oPI)=MaxEMV=100
Therefore,EVPI=EVwPI-EVw/oPI=125-100=25 hence the company should be willing to pay $25 thousands for perfect inside information.
c) Find the solution below(explanation part)
d)Based on the special decision strategy ;
The company should produce pilots (for favorable(I1)
The company should sell to the competitor(For unfavorable (I2)
e)The expected value of the sample information =$99 thousands.
the maximum Bastarache should be willing to pay for this information=expected value with sample information -expected without sample information +present cost of sample information
=99-100+25=$1.5 thousands
Please see the attached file for the complete solution
