The NBS television network has to decide whether to air a showor not air a show. If the show is aired then the NBS televisionnetwork earns an average of $400,000 from a hit show and loses anaverage of $100,000 on a flop. Of all shows reviewed by thenetwork, 25% turn out to be hits and 75% turn out to be flops. For$40,000, a market research firm will have an audience view a pilotof a prospective show and give its view about whether the show willbe a hit or a flop. If a show is actually going to be a hit, thereis a 90% chance that the market research firm will predict the showto be a hit. If the show is actually going to be a flop, there isan 80% chance that the market research firm will predict the showto be a flop.
Determine how the network can maximize its expected profits(e.g. maximize its EP) (28 points)
Find the Expected Value of Sample information (EVSI), which isthe maximum amount that the network is willing topay the market research firm. (4 points)
Find the expected Value of Perfect Information (EVPI) (8points)
