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

Quizplus · Accepted Answer

The expected payoff for the economics book is (0.5 * 40,000) + (0.5 * 0.8 * 30,000) = 20,000 + 12,000 = 32,000 copies. The expected payoff for the statistics book is (0.4 * 50,000) + (0.6 * 0.5 * 35,000) = 20,000 + 10,500 = 30,500 copies. The optimum decision is to write the economics book with an expected payoff of 32,000 copies.

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