Hale's TV Productions is considering producing a pilot for acomedy series in the hope of selling it to a major televisionnetwork. The network may decide to reject the series, but it mayalso decide to purchase the rights to the series for either one ortwo years. At this point in time, Hale may either produce the pilotand wait for the network's decision or transfer the rights for thepilot and series to a competitor for $250,000. Hale's decisionalternatives and profits (in thousands of dollars) are asfollows:
| State of Nature |
| Decision Alternative | Reject, S1 | 1 Year, S2 | 2 Years, S3 |
| Produce pilot, d1 | -150 | 50 | 450 |
| Sell to competitor, d2 | 250 | 250 | 250 |
The probabilities for the states of nature areP(S1) = 0.20, P(S2) = 0.30,and P(S3) = 0.50. For a consulting fee of$45,000, an agency will review the plans for the comedy series andindicate the overall chances of a favorable network reaction to theseries. Assume that the agency review will result in a favorable(F) or an unfavorable (U) review and that thefollowing probabilities are relevant:
| P(F) = 0.63 | P(S1|F) = 0.07 | P(S1|U) = 0.41 |
| P(U) = 0.37 | P(S2|F) = 0.27 | P(S2|U) = 0.38 |
| P(S3|F) = 0.66 | P(S3|U) = 0.21 |
a. What is the expected value?
b. What is the expected value of perfect information?
c. What is the expected value of the agency's information? Roundyour answer to two decimal places.
d. What is the maximum that Hale should be willing to pay forthe information? Round your answer to two decimal places.
