Question

"Jay, a writer of novels, just has completed a new thriller novel. A movie company and a TV network both want exclusive rights to market his new title. If he signs with the network, he will receive a single lump sum of $1,460,000, but if he signs with the movie company, the amount he will receive depends on how successful the movie is at the box office.
The probability of a small box office earning $264,000 is 0.25. The probability of a medium box office of $1,260,000 is 0.6, and the probability of a large box office of $3,040,000 is 0.15.
Assume that Jay wants to maximize his expected monetary value. Enter the expected monetary value (EMV) of the preferred option."

Answer 1

Expected monetary value can be used to quantify the risks and to decide whether the project must be taken or not.

EMV for movie

Success	Earnings (X)	probability(px )	px *X
Small box office	264,000	0.25	66000
Medium box office	1260000	0.6	756000

Large box office

3040000

0.15

456000

So EMV = 66000+756000+456000

=$1,278,000

EVM for Tv network as there is no risk involved so probability will be equal to 1.

So EVM for TV network = $1460000*1=$1460000