3 (a) You are the author of a new novel. You can choose to self-publish by...

  

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3 (a) You are the author of a new novel. You can choose to self-publish by making your own website to with the help of a local developer for a cost of $15,000, or you can sell them via an existing publisher. There is a 10% chance the novel will be trending and sell 100,000 copies; but otherwise be a flop and sell only 6,000 copies. The publisher can produce at distribute copies at $10 each, will sell copies for $20 each and take a 50% cut of the profits. If you choose to self-publish, you can produce and distribute copies for $12 each and must sell at a cheaper price of $18 to attract buyers (but keep all of the profit). (i) Draw and evaluate a decision tree for this decision problem. Determine the best decision (based on the EMV criterion) and its value. (ii) What is the maximum you would pay for any information about whether the novel will become trending (i.e. the EVPI)? 3 (a) You are the author of a new novel. You can choose to self-publish by making your own website to with the help of a local developer for a cost of $15,000, or you can sell them via an existing publisher. There is a 10% chance the novel will be trending and sell 100,000 copies; but otherwise be a flop and sell only 6,000 copies. The publisher can produce at distribute copies at $10 each, will sell copies for $20 each and take a 50% cut of the profits. If you choose to self-publish, you can produce and distribute copies for $12 each and must sell at a cheaper price of $18 to attract buyers (but keep all of the profit). (i) Draw and evaluate a decision tree for this decision problem. Determine the best decision (based on the EMV criterion) and its value. (ii) What is the maximum you would pay for any information about whether the novel will become trending (i.e. the EVPI)?