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 optimum decision alternative?
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 optimum decision alternative?
A)50,000 copies 
B)40,000 copies 
C)32,000 copies 
D)30,500 copies 
E)10,500 copies

Quizplus · Accepted Answer

To find the expected payoff for each decision alternative, we can use the following formula:

Expected Payoff = (Probability of Success with Major Publisher * Sales with Major Publisher) + (Probability of Success with Smaller Publisher * Sales with 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 = 38,000

Therefore, the statistics book has a higher expected payoff and would be the best choice.

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