Question

The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $1.5 million. If it would cost $2 million to finish development and make the product, you go ahead and do so. The most you should pay to complete development is $_______million.

Answer 1

Answer:

You should pay "$3" million to complete the development.

Explanation:

• The possibility you've already plunged $5 million is therefore no longer important to either calculation, although this money disappears. All counts now would be the small chance of gaining money. When you are investing around $1 million and are able to produce $3 million in funding, users earn $2 million in gross income, so clients will.
• You seem entitled to say that perhaps a gross of $3 million has indeed been wasted to the venture, and you really should not even have begun it.  That would be real, however, if you ever don't invest about $1 million extra you apparently can't have any profits and total damages will have been $5 million.

And therefore what counts has never been the overall income, but the incremental benefit that you will receive.  In reality, you'd pay approximately $3 million to feel a sense of achievement, not much more, and towards the bottom, you won't increase income.