Netflix earns an average of $2 million each season from a successful show and loses an average of $450,000 each season on a show that turns out to be unsuccessful. Of all shows picked up by Netflix in recent years, 27% turned out to be successful. Before airing a show and at a cost of $175,000, a market research firm will analyze a pilot episode of a prospective show and issue a report predicting whether the given show will end up being successful or not. If the show is actually going to be successful, there is a 15% chance that the report will predict the show to be unsuccessful. If the show is going to be unsuccessful, there is a 75% chance that the report will predict the show to be unsuccessful.
a. Using PrecisionTree, what strategy would maximize Netflix's profits?
b. If the report cost is varied between $100,000 and $250,000, how does that affect the optimal decision?
c. Is the report worth $175,000? Explain
d. What is the maximum amount that Netflix should be willing to pay for any report?