The NBC TV network earns an average of $400,000 from a hit show and loses an average of $100,000 on a flop (a show that cannot hold its rating and must be canceled). If the network airs a show without a market review, 25% turn out to be hits, and 75% are flops.
For $40,000, a market research firm can be hired to help determine whether the show will be a hit or a flop. If the show is actually going to be a hit, there is a 90% chance that the market research firm will predict a hit. If the show is going to be a flop, there is an 80% chance that the market research will predict the show to be a flop. Determine how the network can maximize its profits over the long haul.