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slideshare scribd company logo salle universitymanila industrial engineering department introduction operations research iii decision theory mba movie studio trying decide distribute its new claws has potential being great financial success smash but executives are not sure because subject controversial have seen some films heralded smashes become flops disastrous consequences facing whether put out limited first run basis means will show only few select theaters during six months after released generally turns clearly best approach makes considerable profit from these other alternative release film wide distribution immediately profits two alternatives given table below classified terms medium flop level probability initial widespread millions there discussion about management finally agreed probabilities shown make still clear one possibility sneak previews get audiences opinions cost such process would php several feel money wasted since preview audience tends rate good outstanding 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https://image.slidesharecdn.com/decisiontheory-110112001219-phpapp02/85/decision-theory-problems-1-320.jpg height: height attribute not set width: width attribute not set description: industrial engineering department introduction to operations research iii decision theory 1. the mba movie studio is trying to decide to distribute its new movie “claws”. the movie has the potential of being a great financial success (a “smash”), but the executives are not sure because the subject is controversial. and they have seen some films heralded as “smashes” become “flops” with disastrous financial consequences. the decision facing mba is whether or not to put out the movie “claws” on a limited first run basis. this means that the movie will show only in a few select theaters during the first six months. after six months it will be released generally. if the movie turns out to be a success, this is clearly the best approach because the studio makes considerable profit from these theaters. the other alternative is to release the film for wide distribution immediately. the profits for the two alternatives are given in the table below, classified in terms of whether the film is a “smash”, or “medium” success, or a “flop”. profits from film “claws” level of success probability limited initial widespread release release (in millions) (in millions) smash 0.3 22 12 medium 0.4 8 8 flop 0.3 -10 -2 there is considerable discussion in mba about the potential of claws. management has finally agreed on the probabilities shown in the table. but which decision to make is still not clear. one possibility is to have a few sneak previews of the movie and get the audience’s opinions. the cost of such a process would be about php 50,000. and several executives in the company feel it would be money wasted, since sneak preview audience tends to rate a movie as good or outstanding even when it later tuns out to be flop. to support this, the following table was produced, describing the company’s past experience with sneak preview audience reactions. sneak preview audience reaction audience smash medium flop total rating outstanding 9 12 3 24 good 1 6 5 12 poor 0 2 2 4 total 10 20 10 40 a. draw the decision tree for this problem. b. calculate the posterior probabilities for “smash”, “medium”, and “flop” given the various audience reactions. c. assume that mba is willing to base its decision on expected monetary value. what decision should the mba movie studio make about the movie “claws”? 2. the tarheel manufacturing company must decide whether to build a large plant or a small one to process a new product with an expected life of 10 years. demand may be high during the first 2 years, but if many users find the product unsatisfactory, demand will be low for the remaining 8 years. high demand during the first 2 years may indicate high demand for the |
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