Determine based on expected profits

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Reference no: EM13113059

Q. A publisher has received an unsolicited manuscript of a first novel. The decision is whether to offer the author a contract. Based on an initial reading of the manuscript the publisher estimates the subsequent profits if a contract is offered: If the sales level is high, profits will be $100,000; if moderate, profits will be $20,000; if low they will lose $30,000. The publisher estimates the probabilities for the sales level to be: P(high) = .1, P(moderate) = .4, P(low) = .5. Determine, based on expected profits, whether the author should be offered a contract or not. Determine the expected value of perfect information.

Reference no: EM13113059

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