You are the author of what promises to be a successful novel. You have the option to either publish the novel yourself or through a publisher. The publisher is offering you $20,000 for signing the contract. If the novel is successful, it will sell 200,000 copies. Else, it will sell 10,000 copies only. The publisher pays a $1 royalty per copy. A market survey indicates that there is a 70% chance that the novel will be successful. If you undertake publishing, you will incur an initial cost of $90,000 for printing and marketing, but each copy sold will net you $2.

(a) Based on the given information, would you accept the publisher’s offer or publish the novel yourself?

(b) Suppose that you contract a literary agent to conduct a survey concerning the potential success of the novel. From past experience, the agent advises you that when a novel is successful, the survey will predict the wrong outcome 20% of the time. When the novel is not successful, the survey will give the correct prediction 85% of the time. How would this information affect your decision?