Question

Q1. Hale’s TV Productions is considering producing a pilot for a comedy series in the hope of selling it to a major television network. The network may decide to reject the series, but it may also decide to purchase the rights to the series for either one or two years. At this point in time,

Hale may either produce the pilot and wait for the network’s decision or transfer the rights for the pilot and series to a competitor for $100,000. Hale’s decision alternatives and profits (in thousands of dollars) are as follows:

State of Nature

Decision Alternative	Reject, s1	1 Year, s2	2 year, s3
Produce Pilot, d1	-50	120	200
Sell to competitor, d2	100	100	100

The probabilities for the states of nature are P(s1) = 0.20, P(s2) = 0.50, and P(s3) = 0.30. For a consulting fee of $5000, an agency will review the plans for the comedy series and indicate the overall chances of a favorable network reaction to the series.

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1. A test market study of the potential demand for the product is expected to report either a

favorable (F) or unfavorable (U) condition. The relevant conditional probabilities are as follows:

                    P(F | s1) = 0.80                               P(U | s1) = 0.20                     P(F | s2) = 0.25                               P(U| s2) = 0.75                     P(F | s3) = 0.60                            P(U | s3) = 0.40

What is the probability that the market research report will be favorable and Unfavorable?

Answer 1