Question
A publisher is considering whether to produce e-book for a subject at the postgraduate level or not. If the market for e-book is favorable, then
A publisher is considering whether to produce e-book for a subject at the postgraduate level or not. If the market for e-book is favorable, then the return is $200,000, but if the market for the e-book is unfavorable, then the loss is $60,000. The publisher estimates that the probability of a favorable market is 0.8. The publisher is considering the possibility of using marketing research to gather additional information about the market. Either a survey or a pilot market test can be used. The publisher is not sure if the value of the survey or the pilot test is worth the cost. The survey will cost $7,000. The probability of a favorable survey result given a favorable market is 0.6, and the probability of a favorable survey result given an unfavorable market is 0.3. The pilot market test will involve producing several chapters of the e-book and actually trying to test it in courses. It will cost $30,000. The probability of an unfavorable pilot test result given an unfavorable market is 0.95, and the probability of an unfavorable pilot test result given a favorable market is 0.1. What is the best decision for the publisher? Draw a decision tree to make decision.
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