An author is trying to choose between two publishing companies that are competing for the marketing rights to her new novel. Company A has offered the author $10,000 plus $2 per book sold. Company B has offered the author $2,000 plus $4 per book sold. The author believes that five levels of demand for the book are possible: 1,000, 2,000, 5,000, 10,000, and 50,000 books sold.
a. Compute the payoffs for each level of demand for company A and company B.
b. Construct a payoff table, indicating the events and alternative courses of action.
c. Construct a decision tree.
d. Construct an opportunity loss table.