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 and rough conditions occur with the same frequency, which app should the company produce? Note: both apps cost the same amount to develop.

Answer 1

Answer:

The company should produce App B.

Explanation:

a) Data and Calculations:

App A

Ideal condition Sales = 100,000 at $1 = $100,000

Tough condition Sales = 60,000 at $0.80 = $48,000

Expected Sales Revenue under ideal = $100,000 * 50% = $50,000

Expected Sales Revenue under tough = $48,000 * 50% = $24,000

Total sales = $74,000

App B:

Ideal condition Sales = 500,000 at $0.50 = $250,000

Tough condition Sales = 10,000 at $0.50 = $5,000

Expected Sales Revenue under ideal = $250,000 * 50% = $125,000

Expected Sales Revenue under tough = $5,000 * 50% =       $2,500

Total sales = $127,500

b) App B will yield a total expected sales revenue of $127,500.  This is far better than App A's $74,000.