Introduction to Management Science 12th Edition by Bernard Taylor

Exercise 13

Jeffrey Mogul is a Hollywood film producer, and he is currently evaluating a script by a new screenwriter and director, Betty Jo Thurston. Jeffrey knows that the probability of a film by a new director being a success is about.10 and that the probability it will flop is.90. The studio accounting department estimates that if this film is a hit, it will make $25 million in profit, whereas if it is a box office failure, it will lose $8 million. Jeffrey would like to hire noted film critic Dick Roper to read the script and assess its chances of success. Roper is generally able to correctly predict a successful film 70% of the time and correctly predict an unsuccessful film 80% of the time. Roper wants a fee of $1 million. Determine whether Roper should be hired, the strategy Mogul should follow if Roper is hired, and the expected value.