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.
EMV(in thousands) of App A is .5(100 ) + .5(48 ) = $74
EMV(in thousands) of App B is .5(250 ) + .5(5 ) = $127.5
The company should pursue App B to maximize expected revenue.
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