Question

question 1 to 3 are finished, need solutions for the rest, please

"Citizen's Agenda" is a band that performs in the Mid Atlantic area. The group has recently made contact with a music producer and is trying to convince him to produce its first album. If the album is produced, the record label will conduct a massive nationwide marketing campaign. Even with the campaign, the producer believes that sales for their album could either be huge or abysmal. After considering all of the costs for recording, manufacturing, advertising promotion, distribution and fixed payments to the group members), the producer estimates a net profit of $400,000 if the release is a success. If it flops, the label would lose S200,000. The producer has serious reservations as to whether the album release will succeed and assigns a 30% likelihood to this outcome. 1. What is the producer's initial decision given the above information? Just as he is about to tell the band of his decision, the producer is approached by a friend at Music Insights Inc. (MII) who has developed a new, unique research process to gauge purchase habits of music-buying audiences. Her process is incredibly accurate in making predictions and, as such, she charges a significant amount for the effort: $150,000. 2. Should the producer pay for this information? Why or why not. The producer and his staff decide that a standard, internal market survey could be conducted to gather partial or imperfect information before making a decision. It would focus on 2 test markets and would cost $20,000 to complete. In the past, similar surveys have often predicted quite accurately the success or failure of a new record, but occasionally a record is a failure even if it's been predicted to be a success (and vice versa). In some cases, the results of the survey turn out to be inconclusive (no indication of success or failure). The market research manager for the label has identified the following probabilities to the possible survey results for the two possible sales levels: Actual Level of Sales Survey Prediction High Sales (Huge Success) Low Sales (Abysmal) Success Inconclusive Failure 3. Using the probability data, compute the following: a) P (Success Survey predicts success) b) P (Failure Survey predicts success) c) P (Success Survey inconclusive) d) P (Failure Survey inconclusive) e) P (Success Survey predicts failure) f) P (Failure Survey predicts failure) g) P (Survey predicts success)

Answer 1

solo ļ Expected monetary value (ZMW) option 1 Launch The album Likelihood of success -30% Likelihood of failure - 70% Net progit: fuccess: pso got - $ 400000 failure : 1088 – $200000 EMN ₃ Likelihood of success alefprofit for success. + Likelihood of fallose* Net loss for failure EMV = 0.30 * 400000 + 0.70* (200000) = 120000 -140000 = -20,000 option 2. Don't launch the album. Emv = $0. Maximum EMV is for option 2. so worth The given infor -mation produces should not launch The alsium. Ansa - we need to find ine Expected value of perfect Information to decide whether to hire or not he to friend to presict the outcome. Expected value of persect Information (EUPU - Expected value with perfect info – mar EMV INWPI = (Best outcome for 1st state of Nature il Juccess)

Ev WPI = (Best out come for 1st state of Nature le success)* (probablety of 98f state of Natore)+ ( Best outcome boy and state of Nature de sallore )* (probability of and state of alatures The best outcome for the sleete of alature "success" is to launch the product with a pay off of $400000. is the best outcome for the state of nature fallore" is not to launch the product with a pay off of fo. EV WP) = 0.30*400000 +0.70*8 = $ 120,000 max. Emr = 0 (As explained in the Auswerf) EVPL = EVw PJ – Mat. EMV = 120000 -0 =120000, The most The produce should pay for the perfect Information is $120000. this friend charge $150000 So if not worth to get The Desfect Information.
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