Orange Inc.’s R&D team just finished the prototype of a new cell phone named ephone. The management team is considering whether to launch this new product to the national market. Among Orange Inc.’s past products, 60% succeeded in the national market (in other words, 40% failed). It is estimated that if e-phone succeeds in the national market, then it will bring Orange a $5 million profit. However, if e-phone fails in the national market, then Orange will experience a $2 million loss. Of course Orange has the option of not launching e-phone, which will result in no gain/loss.

a. What is Orange’s estimated expected payoff for launching e-phone to the US market?

b. What is the maximum amount that Orange would be willing to pay to gain market information?