The Head of Operations for a Movie Studio Wants to Determine

question 88

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 probability that script 1 will be a success, but its sequel will not?

• A) .8
• B) .7
• C) .56
• D) .2
• E) .14

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Definitions:

Contribution Margin

A financial metric that represents the difference between a company's sales revenue and its variable costs. It is used to analyze the profitability of individual products.

Monthly Sales Volume

Refers to the total number of units sold or services rendered in a month.

Independent Variable

A variable in an experiment or model that is manipulated or changed to observe its effect on a dependent variable, without being affected by other variables.

Machine-Hours

A measure of production time that indicates the total hours machines were operated to complete a task or manufacture goods.