What Is His Expected Value of Perfect Information

question 31

Multiple Choice

What is his expected value of perfect information?

• A)$187,000.
• B)$132,000.
• C)$123,000.
• D)$65,000.
• E)$55,000.
• The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production.She feels that script #1 has a 70% chance of earning $100 million over the long run,but a 30% chance of losing $20 million.If this movie is successful,then a sequel could also be produced,with an 80% chance of earning $50 million,but a 20% chance of losing $10 million.On the other hand,she feels that script #2 has a 60 % chance of earning $120 million,but a 40% chance of losing $30 million.If successful,its sequel would have a 50% chance of earning $80 million and a 50% chance of losing $40 million.As with the first script,if the original movie is a "flop",then no sequel would be produced.

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Definitions:

Balance of Trade Surplus

A situation where the value of a country's exports exceeds the value of its imports over a given period, indicating a positive balance of trade.

Exports

Goods or services produced in one country and sold to buyers in another, contributing to the selling country's national income.

Imports

Goods or services brought into one country from another for sale or use.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision or choosing between options.