The manager of Zentronics Corp. must decide whether to initiate an advertising campaign for the firm's newest multimedia computer chip. There has been some discussion among division managers about the chip's market condition. The marketing department assesses the probability of having a strong market to be 0.30.

The manager, with the help of the marketing staff, has estimated the profits she believes the firm could earn:

Profits with advertising:

Strong market....................$22 million

Weak market........................8 million

Profits without advertising:

Strong market....................$15 million

Weak market......................10 million

Required

1. Should the firm undertake the advertising campaign? Why or why not?

2. What is the probability level regarding the state of the market that will render the manager indifferent as to the two courses of action?

3. What is the maximum amount the firm should pay to obtain perfect information regarding the state of the market, assuming such information is available?