A radio station that currently directs its programming toward middle-age listeners is contemplating switching to rock-and-roll music. After analyzing advertising revenues and operating costs, the owner concludes that, for each percentage point of market share, revenues increased by $100,000 per year. Fixed annual operating costs are $700,000. The owner believes that, with the change, the station will get a 5%, 10%, or 20% market share, with probabilities .4, .4, and .2, respectively. The current annual profit is $285,000.
a. Set up the payoff table.
b. Determine the optimal act.
c. What is the most the owner should be willing to pay to acquire additional information about the market share?
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