Question

Two professors at a nearby university want toco-author a new textbook in either economics or statistics. They feel that ifthey write an economics book, they have a 50 percent chance of placing it witha major publisher, and it should ultimately sell about 40,000 copies. If theycan't get a major publisher to take it, then they feel they have an 80 percentchance of placing it with a smaller publisher, with ultimate sales of 30,000copies. On the other hand, if they write a statistics book, they feel they havea 40 percent chance of placing it with a major publisher, and it should resultin ultimate sales of about 50,000 copies. If they can't get a major publisherto take it, they feel they have a 50 percent chance of placing it with asmaller publisher, with ultimate sales of 35,000 copies.What is the expected value for the decision alternative to write the economics book?a. 50,000 copiesb. 32,000 copiesc. 40,000 copiesd. 10,500 copiese. 30,500 copies

Answer 1

Answer: Option (b) is correct.

Explanation:

Economics:

Probability of placing it with a major publisher(pm) = 0.5 for selling(sm) = 40,000 copies

Probability of placing it with a smaller publisher(ps) = 0.8 for selling(ss) = 30,000 copies

Therefore,

Expected value (Economics) = pm × sm + pm(ps × ss)

                                               = 0.5 × 40,000 + 0.5(0.8 × 30,000)

                                               = 32,000 copies