A television network earns $2.5 million dollars each season for a hit program and loses $0.5 million each season for a flop. In general, 19% of the programs are considered hits and 81% of the programs are flops. If the network does not make any program, no profit will be earned.
1. Construct the 1st decision tree that is the “No Any Information” tree to capture the above scenario.
2. Based on (1), should the network continue making programs? Why or Why not. Please explain in detail.
3. Construct the 2nd decision tree that has both “No Any Information” and “Perfect Information” decision alternatives.
4. Based on (3), calculate EVPI.
5. Based on (4), is it better for the network with the perfect information before they decide whether or not to make any program? Why or Why not. Please explain in detail.