The management of Motion Pictures Cinema is considering whether to show an advance screening of a...

 

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The management of Motion Pictures Cinema is considering whether to show an advance screening of a forthcoming action movie. The hiring of the film will cost the cinema 2,500 and the revenue obtained from the screening will depend upon two factors, namely the number of people attending the movie and the amount spent by each person on confectionary. Past experience suggests that the average audience if the screening proves to be very popular is 600 people, if popular 500 people and if unpopular 350 people. In an attempt to attract cinema goers to view the film, a ticket price of 5 per person will be charged. The amount spent on confectionary per person does not depend upon the popularity of the film and will be either 6, 4 or 2 person. The profit margin on confectionary sales is 50%. The estimated probabilities for the audience and the amount spent on confectionary are shown in the table below: Audience size 600 500 350 Probability 0.3 0.5 0.2 Confectionary spend 6 Probability 4 2 0.4 0.4 0.2 Requirement (a) Calculate the expected profit from the screening of the film (showing all nine combinations of audience size and confectionary spend). (b) Explain the following terms in relation to decision making: i. Expected value ii. Maximax iii. Maximin iv. Minimax regret 18 Marks The management of Motion Pictures Cinema is considering whether to show an advance screening of a forthcoming action movie. The hiring of the film will cost the cinema 2,500 and the revenue obtained from the screening will depend upon two factors, namely the number of people attending the movie and the amount spent by each person on confectionary. Past experience suggests that the average audience if the screening proves to be very popular is 600 people, if popular 500 people and if unpopular 350 people. In an attempt to attract cinema goers to view the film, a ticket price of 5 per person will be charged. The amount spent on confectionary per person does not depend upon the popularity of the film and will be either 6, 4 or 2 person. The profit margin on confectionary sales is 50%. The estimated probabilities for the audience and the amount spent on confectionary are shown in the table below: Audience size 600 500 350 Probability 0.3 0.5 0.2 Confectionary spend 6 Probability 4 2 0.4 0.4 0.2 Requirement (a) Calculate the expected profit from the screening of the film (showing all nine combinations of audience size and confectionary spend). (b) Explain the following terms in relation to decision making: i. Expected value ii. Maximax iii. Maximin iv. Minimax regret 18 Marks

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Answer To calculate the expected profit from the screening of the film we need to consider all nine combinations of audience size and confectionary sp... View the full answer