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Anand 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 0.6504 probability that the textbook will be successful. If successful, a profit of $850,000 will be realized. If the company decides to publish the textbook and it is unsuccessful, a loss of $150,000 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 an unfavorable (U) evaluation of the manuscript. Past experience with the review process suggests probabilities P(F) = 0.7 and P(U)= 0.3 apply. Let s₁ = the textbook is successful, and $₂ = the textbook is unsuccessful. The editor's initial probabilities of s, and s₂ will be revised based on whether the review is favorable or unfavorable. The revised probabilities are as follows: P(S₂IF) = 0.75 P(S₂IF) = 0.25 P(S₂IU) = 0.418 P(S₂IU)= 0.582 (a) Construct a decision tree assuming that the company will first make the decision of whether to send the manuscript out for review and then the decision to accept or reject the manuscript. (For each blank, enter the probability associated with the event.) Description Decision Troo

Anand 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 0.6504 probability that the textbook will be successful. If successful, a profit of $850,000 will be realized. If the company decides to publish the textbook and it is unsuccessful, a loss of $150,000 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 an unfavorable (U) evaluation of the manuscript. Past experience with the review process suggests probabilities P(F) = 0.7 and P(U)= 0.3 apply. Let s₁ = the textbook is successful, and $₂ = the textbook is unsuccessful. The editor's initial probabilities of s, and s₂ will be revised based on whether the review is favorable or unfavorable. The revised probabilities are as follows: P(S₂IF) = 0.75 P(S₂IF) = 0.25 P(S₂IU) = 0.418 P(S₂IU)= 0.582 (a) Construct a decision tree assuming that the company will first make the decision of whether to send the manuscript out for review and then the decision to accept or reject the manuscript. (For each blank, enter the probability associated with the event.) Description Decision Troo

Algebra: Structure And Method, Book 1
Algebra: Structure And Method, Book 1
(REV)00th Edition
ISBN:9780395977224
Author:Richard G. Brown, Mary P. Dolciani, Robert H. Sorgenfrey, William L. Cole
Publisher:Richard G. Brown, Mary P. Dolciani, Robert H. Sorgenfrey, William L. Cole
Chapter2: Working With Real Numbers
Section2.3: Rules For Addition
Problem 8P
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Anand 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 0.6504 probability that the textbook will be successful. If successful, a profit of $850,000 will be realized. If the company decides to publish the textbook and it is unsuccessful, a loss of $150,000 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 an unfavorable (U) evaluation of the manuscript. Past experience with the review process suggests probabilities P(F) = 0.7 and P(U) = 0.3 apply. Let s₁ the textbook is successful, and 52 = 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(S₁IF) = 0.75 P(S₂|F) = = 0.25 P(S₁|U) = = 0.418 P(S₂|U) = = 0.582 (a) Construct a decision tree assuming that the company will first make the decision of whether to send the manuscript out for review and then the decision to accept or reject the manuscript. (For each blank, enter the probability associated with the event.) Description 1 Decision Tree Review Do Not Review Favorable 4 Unfavorable 3 Accept Reject 5 Accept Reject Accept Reject Success Failure 8 Success Failure Success Failure 850 -150 (d) What is the expected value of perfect information (in $)? EVPI = $ 0 850 -150 0 -- 850 - 150 0 (b) Assuming the manuscript review process is free, using the expected value approach, determine the optimal decision strategy. Always reject. Do not review, and accept. Review, and then always accept. Review, and then accept if favorable or reject if unfavorable. Always accept. (c) If the manuscript review costs $5,000, what is your recommendation? Always reject. Do not review, and accept. Review, and then always accept. Review, and then accept if favorable or reject if unfavorable. Always accept. What does this EVPI suggest for the company? This EVPI suggest a better procedure for assessing the market potential for the textbook may be ---Select---
Transcribed Image Text:Anand 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 0.6504 probability that the textbook will be successful. If successful, a profit of $850,000 will be realized. If the company decides to publish the textbook and it is unsuccessful, a loss of $150,000 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 an unfavorable (U) evaluation of the manuscript. Past experience with the review process suggests probabilities P(F) = 0.7 and P(U) = 0.3 apply. Let s₁ the textbook is successful, and 52 = 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(S₁IF) = 0.75 P(S₂|F) = = 0.25 P(S₁|U) = = 0.418 P(S₂|U) = = 0.582 (a) Construct a decision tree assuming that the company will first make the decision of whether to send the manuscript out for review and then the decision to accept or reject the manuscript. (For each blank, enter the probability associated with the event.) Description 1 Decision Tree Review Do Not Review Favorable 4 Unfavorable 3 Accept Reject 5 Accept Reject Accept Reject Success Failure 8 Success Failure Success Failure 850 -150 (d) What is the expected value of perfect information (in $)? EVPI = $ 0 850 -150 0 -- 850 - 150 0 (b) Assuming the manuscript review process is free, using the expected value approach, determine the optimal decision strategy. Always reject. Do not review, and accept. Review, and then always accept. Review, and then accept if favorable or reject if unfavorable. Always accept. (c) If the manuscript review costs $5,000, what is your recommendation? Always reject. Do not review, and accept. Review, and then always accept. Review, and then accept if favorable or reject if unfavorable. Always accept. What does this EVPI suggest for the company? This EVPI suggest a better procedure for assessing the market potential for the textbook may be ---Select---
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