The owner of a radio station in a rapidly growing community in central Texas is
ID: 3183642 • Letter: T
Question
The owner of a radio station in a rapidly growing community in central Texas is about to begin operations and must decide what type of program format to offer. She is considering three formats; rock, country, and rap. The number of listeners for a particular format will depend on the type of potential audience that is available. Income from advertising depends on the number of listeners the station has. Three broad categories of audience type can be described as A1, A2, and A3. The rock music format draws mainly for the A1 listener, the country music format draws mainly from the A2 listener and the rap music format draws mainly from the A3 listener. The station owner does not know which type of audience will dominate the community once its growth has stabilized. Probabilities have been assigned to the potential dominant audience, based on the community growth that has already occurred in this area. Since she wants to begin building an image now, the decision as to which format to adopt must be made in an environment of uncertainty. The station owner has been able to construct the following payoff table, in which the entries are average monthly revenue in thousands of dollars.
Audience
A1
A2
A3
$ 100
$ 80
$ 70
$ 90
$ 100
$ 50
$ 70
$ 86
$ 100
0.3
0.5
0.2
What format is least optimal?
FormatA1
A2
A3
Rock$ 100
$ 80
$ 70
Country$ 90
$ 100
$ 50
Rap$ 70
$ 86
$ 100
Probability0.3
0.5
0.2
Explanation / Answer
Country is most optimal as higher probability audience have the higher payoff.
100 0.5
90 0.3
50 0.2
Rap has a higher payoff in the highest probability scenario amongst Rock and Rap, so Rock is the least optimal scenario.
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