Question

Anand Publishing Company received a six-chapter manuscript for a new college textbook. The editor of the college division is familiar with the manuscript and estimated a 0.65 probability that the textbook will be successful. If successful, a profit of $750,000 will be realized. If the company decides to publish the textbook and it is unsuccessful, a loss of $250,000 will occur. Before making the decision to accept or reject the manuscript, the editor is considering sending the manuscript out for review. The manuscript review costs $5000, which provides either a favorable (F) or unfavorable (U) evaluation of the manuscript. Let $s_1$ = the textbook is successful, and $s_2$ = the textbook is unsuccessful. The editor's initial probabilities of $s_1$ and $s_2$ will be revised based on whether the review is favorable or unfavorable. Past experience with the review process suggests the following conditional probabilities. $P(F \mid s_1) = 0.81$ $P(U \mid s_1) = 0.19$ $P(F \mid s_2) = 0.50$ $P(U \mid s_2) = 0.50$ a. (3 points) Please figure out the posterior probabilities for all outcomes if an manuscript review is conducted. b. (6 points) Please recommend whether the editor should send the manuscript out for review. Construct and solve the decision tree for this entire problem in Excel. c. (3 points) Assess the efficiency of review sample information and discuss the usefulness of the external manuscript review.

          Anand Publishing Company received a six-chapter manuscript for a new college
textbook. The editor of the college division is familiar with the manuscript and
estimated a 0.65 probability that the textbook will be successful. If successful, a
profit of $750,000 will be realized. If the company decides to publish the
textbook and it is unsuccessful, a loss of $250,000 will occur.
Before making the decision to accept or reject the manuscript, the editor
is considering sending the manuscript out for review. The manuscript review
costs $5000, which provides either a favorable (F) or unfavorable (U) evaluation
of the manuscript. Let $s_1$ = the textbook is successful, and $s_2$ = the textbook is
unsuccessful. The editor's initial probabilities of $s_1$ and $s_2$ will be revised based
on whether the review is favorable or unfavorable. Past experience with the
review process suggests the following conditional probabilities.
$P(F \mid s_1) = 0.81$
$P(U \mid s_1) = 0.19$
$P(F \mid s_2) = 0.50$
$P(U \mid s_2) = 0.50$
a. (3 points) Please figure out the posterior probabilities for all outcomes if an
manuscript review is conducted.
b. (6 points) Please recommend whether the editor should send the manuscript
out for review. Construct and solve the decision tree for this entire problem in
Excel.
c. (3 points) Assess the efficiency of review sample information and discuss the
usefulness of the external manuscript review.

Anand Publishing Company received a six-chapter manuscript for a new college
textbook. The editor of the college division is familiar with the manuscript and
estimated a 0.65 probability that the textbook will be successful. If successful, a
profit of 750,000 will be realized. If the company decides to publish the
textbook and it is unsuccessful, a loss of250,000 will occur.
Before making the decision to accept or reject the manuscript, the editor
is considering sending the manuscript out for review. The manuscript review
costs 5000, which provides either a favorable (F) or unfavorable (U) evaluation
of the manuscript. Lets1= the textbook is successful, ands2= the textbook is
unsuccessful. The editor's initial probabilities ofs1ands2will be revised based
on whether the review is favorable or unfavorable. Past experience with the
review process suggests the following conditional probabilities.P(F |s1) = 0.81P(U |s1) = 0.19P(F |s2) = 0.50P(U |s2) = 0.50a. (3 points) Please figure out the posterior probabilities for all outcomes if an
manuscript review is conducted.
b. (6 points) Please recommend whether the editor should send the manuscript
out for review. Construct and solve the decision tree for this entire problem in
Excel.
c. (3 points) Assess the efficiency of review sample information and discuss the
usefulness of the external manuscript review.

Added by Kathleen W.

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