Answer:
The expected payoff is $ 6200
Explanation:
With more information
For favorable outcome,
EV of large = 0.9 × 10000 + 0.1 × (-29000) = 6100
EV of small = 0.9 × 1000 + 0.1 × (-14000) = -500
EV of nothing = -4000
Max EV of node 2 (favorable) = MAX (6100, -500, -4000) = 6100
For unfavorable outcome,
EV of large = 0.3 × 10000 + 0.7 × (-29000) = -17300
EV of small = 0.3 × 1000 + 0.7 × (-14000) = -9500
EV of nothing = -4000
Max EV of node 3 (unfavorable) = MAX (-17300, -9500, -4000) = -4000
EV of more information = 0.5 × 6100 + 0.5 × (-4000) = 1050
With no information
EV of large = 0.8 × 14000 + 0.2 × (-25000) = 6200
EV of small = 0.8 × 5000 + 0.2 × (-10000) = 2000
EV of nothing = 0
Max EV of node 4 = MAX(6200, 2000, 0) = 6200
EV of node 4 is the maximum. Therefore, Philip Musa should not gather more information, and build a large video section . The expected payoff is $ 6200