Question

A company producing apps for a social networking site is deciding which path to pursue. The first is to create an app that has universal appeal but faces a crowded market. This app, A, would have sales of 100,000 copies at $1 each under ideal conditions, but under tough conditions would have sales of only 60,000 copies at $.80 each. The other app, B, would have sales of 500,000 units at $.50 each under ideal conditions but sales would be reduced to 10,000 units at $.50 each under tough conditions. If ideal condition is twice as likely as rough conditions occur, what is the expected monetary value (EMV) for App A and B respectively in thousands

Answer 1

Answer:

The expected monetary value on App B is higher.

163 thousand against 83 thousand for app A

Explanation:

We multiply the expected return times the weight of each probability

$\left[\begin{array}{cccc}State&Return&Probability&Weight\\ideal&100,000&0.667&66,667\\tought&48,000&0.33&16,000\\Total&&1&82,667\\\end{array}\right]$

Now, we do the same for App B

$\left[\begin{array}{cccc}State&Return&Probability&Weight\\ideal&250000&0.67&166667\\tought&5000&0.33&1667\\Total&&1&168333\\\end{array}\right]$

The expected monetary value on App B is higher.