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.
-What is the expected payoff for the decision to write the statistics book?
A)50,000 copies
B)40,000 copies
C)32,000 copies
D)30,500 copies
E)10,500 copies

Question

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.
-What is the expected payoff for the decision to write the statistics book?
A)50,000 copies 
B)40,000 copies 
C)32,000 copies 
D)30,500 copies 
E)10,500 copies

Quizplus · Accepted Answer

To calculate the expected payoff for each book, we will use the following formula:

Expected Payoff = (Probability of Major Publisher * Sales of Major Publisher) + (Probability of Smaller Publisher * Sales of Smaller Publisher)

For the economics book:

Expected Payoff = (0.5 * 40,000) + (0.5 * 30,000) 
Expected Payoff = 35,000

For the statistics book:

Expected Payoff = (0.4 * 50,000) + (0.6 * 35,000) 
Expected Payoff = 30,500

Therefore, the expected payoff for the statistics book is 30,500 copies.

The best choice depends on the priorities of the two professors. If they prioritize higher sales over the probability of getting a major publisher, the economics book would be the best choice with expected sales of 35,000. However, if they prioritize the probability of getting a major publisher, the statistics book would be the best choice with a 40% chance of major publisher compared to a 50% chance for the economics book.

Two Professors at a Nearby University Want to Co-Author a New