In Problem 19.4, you developed a payoff table to assist an author in choosing between signing with company A or with company B. Given the results computed in that problem, suppose that the probabilities of the levels of demand for the novel are as follows:

Demand ...................Probability

1,000 ............................0.45

2,000 ............................0.20

5,000 ............................0.15

10,000 ...........................0.10

50,000 ...........................0.10

a. Determine the optimal action based on the maximax criterion.

b. Determine the optimal action based on the maximin criterion.

c. Compute the expected monetary value (EMV) for signing with company A and with company B.

d. Compute the expected opportunity loss (EOL) for signing with company A and with company B.

e. Explain the meaning of the expected value of perfect information (EVPI) in this problem.

f. Based on the results of (c) or (d), if you were the author, which company would you choose to sign with, company A or company B? Why?

g. Compute the coefficient of variation for signing with company A and signing with company B.

h. Compute the return-to-risk ratio (RTRR) for signing with company A and signing with company B.

i. Based on (g) and (h), which company would you choose to sign with, company A or company B? Why?

j. Compare the results of (f) and (i) and explain any differences.

k. Suppose that the probabilities of demand are 0.3, 0.2, 0.2, 0.1, and 0.2, respectively. Repeat (c) through (j) with these probabilities and compare the results with those in (c)-(j).