2) Bastarache TV Productions is considering producing a pilot for a comedy series for the MS television network

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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?