The Head of Operations for a Movie Studio Wants to Determine

question 151

Multiple Choice

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. (Due to budgeting constraints, only one new picture can be undertaken at this time.) She feels that script 1 has a 70 percent chance of earning about $10,000,000 over the long run, but a 30 percent chance of losing $2,000,000. If this movie is successful, then a sequel could also be produced, with an 80 percent chance of earning $5,000,000, but a 20 percent chance of losing $1,000,000. On the other hand, she feels that script 2 has a 60 percent chance of earning $12,000,000, but a 40 percent chance of losing $3,000,000. If successful, its sequel would have a 50 percent chance of earning $8,000,000, but a 50 percent chance of losing $4,000,000. Of course, in either case, if the original movie were a flop, then no sequel would be produced.
What is the expected value of selecting script 2?

• A)$15,000,000
• B)$9,060,000
• C)$8,400,000
• D)$7,200,000
• E)$6,000,000

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Definitions:

Durable Power

Often used in the context of "Durable Power of Attorney," it refers to a legal document granting someone authority to act on another's behalf in specific legal or financial matters, continuing even if the grantor becomes incapacitated.

End of Life

Refers to the period during which an individual is living with, and approaching death from, a terminal condition.

Advanced Directives

Legal documents that allow individuals to specify their preferences for medical treatment in case they become unable to communicate their wishes in the future.

Autonomy

stands for the right or condition of self-governance; the ability of an individual to make independent choices.