Question

A book editor is trying to decide whether or not to publish a manuscript she has just received. If published, the manuscript will either sell 2,000 copies or 5,000 copies. Before deciding whether or not to publish the manuscript, the editor can send the manuscript to a reviewer. The reviewer can either LIKE or DISLIKE the manuscript.
If the book will sell 5,000 copies, there is a 0.65 probability the reviewer will like the manuscript. If the book will sell 2,000 copies, there is a 0.23 probability the reviewer will like the manuscript.
If the editor does not ask the reviewer for the reviewer's opinion, there is a 0.52 probability the manuscript will sell 5,000 copies.
If the manuscript sells 5,000 copies, the editor's company will EARN $200,000 in profit. If the manuscript sells 2,000 copies, the editor's company will LOSE $261,000. If the editor decides not to publish the manuscript, the company does not earn or lose any money unless the editor asks the reviewer to read the manuscript. In addition to the profit or loss from publishing the manuscript, the cost to ask the reviewer for his opinion is $30,000. The editor wants to maximize the expected value. Provide the expected value of the optimal alternative for the editor. There are no interest rates to consider in this problem.

Answer 1