The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production.She feels that script #1 has a 70% chance of earning $100 million over the long run,but a 30% chance of losing $20 million.If this movie is successful,then a sequel could also be produced,with an 80% chance of earning $50 million,but a 20% chance of losing $10 million.On the other hand,she feels that script #2 has a 60 % chance of earning $120 million,but a 40% chance of losing $30 million.If successful,its sequel would have a 50% chance of earning $80 million and a 50% chance of losing $40 million.As with the first script,if the original movie is a "flop",then no sequel would be produced.
-What is the expected payoff from selecting script #1?
A)$150 million
B)$90 6 million
C)$84 million
D)$72 million
E)$60 million

Question

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production.She feels that script #1 has a 70% chance of earning $100 million over the long run,but a 30% chance of losing $20 million.If this movie is successful,then a sequel could also be produced,with an 80% chance of earning $50 million,but a 20% chance of losing $10 million.On the other hand,she feels that script #2 has a 60 % chance of earning $120 million,but a 40% chance of losing $30 million.If successful,its sequel would have a 50% chance of earning $80 million and a 50% chance of losing $40 million.As with the first script,if the original movie is a "flop",then no sequel would be produced.
-What is the expected payoff from selecting script #1?
A)$150 million 
B)$90 6 million 
C)$84 million 
D)$72 million 
E)$60 million

Quizplus · Accepted Answer

The expected payoff from selecting script #1 is $90.6 million. This is calculated as follows:(0.7 x $100 million) + (0.3 x -$20 million) + (0.7 x 0.8 x $50 million) + (0.7 x 0.2 x -$10 million) = $90.6 million

The Head of Operations for a Movie Studio Wants to Determine