Global Studios is thinking of producing a megafilm, Aqua World,which could be a megahit or a megaflop. Profit is uncertain because of two reasons: (1) the cost of producing the firm may be low or high, and (2) the market reception for the film may be strong or weak. There is a 0.5 chance of low cost (C) and a 0.5 chance of high costs. The probability of strong demand (D) is 0.4; the probability of low demand is 0.6. The studio's profits (in millions of dollars) for the four possible outcomes are shown in the table

Low C/Strong D 80 Low C/Weak D 10 High C/Strong D 0 High C/Weak D -70

1.Draw the decision tree for Global Studios. 2. Assuming Global Studios is risk neutral, should the studio produce the film? 3. Assuming Global Studios is risk averse, should the studio produce the film?

Low C/Strong D Low C/Weak D High C/Strong D High C/Weak D 80 10 0 -70 1. Draw the decision tree for Global Studios. 2. Assuming Global Studios is risk neutral, should the studio produce the film? 3. Assuming Global Studios is risk averse, should the studio produce the film