Kristina Larsson is the Stockholm promoter for Gustav Hglund. Larsson is promoting a new world championship fight

Question:

Kristina Larsson is the Stockholm promoter for Gustav Häglund. Larsson is promoting a new world championship fight for Häglund. The key area of uncertainty is the size of the cable pay-per-view TV market. Larsson will pay Häglund a fixed fee of SKr 2 million and 25% of net cable pay-per-view revenue. Every cable TV home receiving the event pays SKr 29.95, of which Larsson receives SKr 16. Larsson pays Häglund 25% of the SKr 16.
Larsson estimates the following probability for homes purchasing the pay-perview event:
Demand Probability
100000......................0.05
200000......................0.10
300000......................0.30
400000......................0.35
500000......................0.15
1000000.....................0.05
Required
1. What is the expected value of the payment Larsson will make to Häglund?
2. Assume the only uncertainty is cable TV demand for the fight. Larsson wants to know the breakeven point given her own fixed costs of SKr 1 million and her own variable costs of SKr2 per home. (Also include Larsson's payments to Häglund in your answer.)
Distribution
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