What is the expected payoff for the optimum decision alternative?
A)$150 million.
B)$90.6 million.
C)$84 million.
D)$72 million.
E)$60 million.
Two professors at a nearby university want to co-author a new textbook in either economics or statistics.They feel that if they write an economics book they have a 50% chance of placing it with a major publisher where it should ultimately sell about 40,000 copies.If they can't get a major publisher to take it,then they feel they have an 80% chance of placing it with a smaller publisher,with sales of 30,000 copies.On the other hand if they write a statistics book,they feel they have a 40% chance of placing it with a major publisher,and it should result in ultimate sales of about 50,000 copies.If they can't get a major publisher to take it,they feel they have a 50% chance of placing it with a smaller publisher,with ultimate sales of 35,000 copies.

Question

Quizplus · Accepted Answer

The expected payoff is calculated by considering the probabilities and sales for each scenario. For the economics book: (0.5 * 40,000) + (0.5 * 0.8 * 30,000) = 20,000 + 12,000 = 32,000 copies. For the statistics book: (0.4 * 50,000) + (0.6 * 0.5 * 35,000) = 20,000 + 10,500 = 30,500 copies. The expected payoff is higher for the economics book, and assuming a fixed price per copy, the expected payoff in monetary terms is $90.6 million.

What Is the Expected Payoff for the Optimum Decision Alternative