Answer just 10 based on information

Daily Joe is a band that performs in the Mid Atlantic area. The group has recently made contact with a music producer and is trying to convince him to produce its first album. The producer likes the bands music but is unsure which direction he should take regarding a deal with the group; he can: Produce Record with a Full-Scale Launch - If the album is produced, the record label will conduct a massive nationwide marketing campaign. Even with the campaign, the producer believes that sales for their album could either be strong or weak. After considering all of the costs for recording, manufacturing, advertising/promotion, distribution and fixed payments (to the group members), the producer estimates a net profit of $1,200,000 if the record release is strong. If its weak, the label would lose $300,000. Release the Album Online The record label would launch the album on its New Artists Channel online and promote it periodically on social media. The producer estimates a net profit of $500,000 if the reception is strong and $100,000 if it is weak. Do Nothing Dont contract with the band. Spend no money/earn no money. 1. If the producer is known to be a pessimist when it comes to new talent launches, what choice would he make? Assume the producer has obtained an estimate that the probability for success for the various launches is 45%. 2. What is his decision in light of this information? Just as he is about to tell the band of his decision, the producer is approached by a friend at Music Insights Inc. (MII) who has developed a new, unique research process to gauge purchase habits of music-buying audiences. Her process is incredibly accurate in making predictions and, as such, she charges a significant amount for the effort: $300,000. 3. Should the producer pay for this information? Why or why not. The producer and his staff decide that a standard, internal market survey (across several cities) could be conducted to gain insight into listeners opinions. In the past, similar surveys have often predicted quite accurately the success or failure of a new record, but occasionally a record is a failure even if its been predicted to be a success (and vice versa). In some cases, the results of the survey turn out to be inconclusive (no indication of success or failure). The market research manager for the label has identified the following probabilities to the possible survey results for the two possible sales levels: Level of Sales Survey Prediction Strong Sales Weak Sales Success .6 .2 Inconclusive .3 .3 Failure .1 .5 4. Using the probability data, compute the following:

a) P (Strong | Survey predicts success) b) P (Weak | Survey predicts success) c) P (Strong | Survey inconclusive) d) P (Weak | Survey inconclusive) e) P (Strong | Survey predicts failure) f) P (Weak | Survey predicts failure) g) P (Survey predicts success) h) P (Survey inconclusive) i) P (Survey predicts failure) 5. Given these probabilities, develop a decision tree and determine what the correct decision is to maximize return. You must show all work including relevant alternatives/decisions, states, probabilities and payoffs. 6. For each of the three possible survey outcomes, what is the best decision? 7. If the survey cost = $40,000, should the record label proceed with the survey effort? Explain in brief statement. Defend with mathematics. 8. What is the maximum amount the label should be willing to spend to conduct the survey (assuming they are comfortable with breaking even)? 9. Regardless of prior answers: Assume the producer proceeds with a standard, internal survey (cost of $40,000) AND it receives a successful response: If the company wants a profit of $150,000 from the release, what is the maximum amount it would then have available for promoting/marketing the new album (assume they want to pay for promotion/marketing ONLY from expected sales revenues)? 10. Regardless of prior answers: The producer proceeds with a standard, internal survey AND it receives a successful response: What is the lowest payoff (approximately) that Strong Sales could drop to before he would rethink moving forward with the album release?