A movie producer has to decide to fund a new movie project.For this project,a success would earn $20 million and a failure would cost $60 million in lost profits. At what probability of expected success should he fund the movie?
A)0.20
B)0.25
C)0.50
D)0.75

Question

​A movie producer has to decide to fund a new movie project.For this project,a success would earn $20 million and a failure would cost $60 million in lost profits. At what probability of expected success should he fund the movie?
A)​0.20
B)0.25
C)0.50
D)​0.75

Quizplus · Accepted Answer

The expected value of funding this project can be calculated as follows:
Expected Value = (Probability of Success x Potential Profit) - (Probability of Failure x Potential Loss)
Let x be the probability of success
Expected Value = (x * $20 million) - ((1-x) * $60 million)
Simplifying this expression:
Expected Value = 80x - 60
The producer should fund the movie only if the expected value is positive. 
80x - 60 > 0
80x > 60
x > 0.75
Therefore, the producer should fund the movie if there's a probability of expected success greater than 0.75 or 75%.

Hence, the best choice is D) 0.75.

​A Movie Producer Has to Decide to Fund a New

A Movie Producer Has to Decide to Fund a New