# Dick Holliday is not sure what he should do. He can build either a large video rental section or a small one in his drugstore. He can also gather additional information or simply do nothing. If he gathers additional information, the results could suggest either a favorable or an unfavorable market, but it would cost him \$3,000 to gather the

Chapter 18, Problems #20
Dick Holliday is not sure what he should do. He can build either a large video rental section or a small one in his drugstore. He can also gather additional information or simply do nothing. If he gathers additional information, the results could suggest either a favorable or an unfavorable market, but it would cost him \$3,000 to gather the information. Holliday believes that there is a 50-50 chance that the information will be favorable. If the rental market is favorable, Holliday will earn \$15,000 with a large section or \$5,000 with a small. With an unfavorable video-rental market, however, Holliday could lose \$20,000 with a large section or \$10,000 with a small section. Without gathering additional information, Holliday estimates that the probability of favorable rental market is .7. A favorable report from the study would increase the probability of a favorable rental market to .9. Furthermore, an unfavorable report from the additional information would decrease the probability of a favorable rental market to .4. Of course, Holliday could ignore these numbers and do nothing. What is your advice to Holliday?