A Company Looking for Venture Capitalist Funding Is Deciding on the Design

question 78

Essay

A company looking for venture capitalist funding is deciding on the design of its operating system for its new phone. The first option is to simply buy the OS from another company. This would result in sales of either 10,000 units if the market is not crowded with similar phones or sales of only 3,000 units if the market is crowded. If the company decides to design its own OS the phone would have sales of 70,000 units if the OS was popular but sales of only 2,000 if the OS was a failure. Suppose that to recoup the cost of designing their own OS the company would need to sell twice as many phones as when they simply buy the OS for the profit from the scenarios to be equal. Which option should the company choose if the probability that the market is/ is not crowded is 50% and the probability that the OS is popular is 75%?

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Definitions:

Felsic Lava

Lava that is high in silica content, typically resulting in lighter colored rocks, such as rhyolite, and is more viscous compared to mafic lava.

Vesicular Lava

Lava characterized by a rough, bubbly texture due to the escape of gases during solidification.

Scoria Cones

Volcanic cones made up of loose, dark-colored volcanic fragments called scoria, typically formed around vents of basaltic lava.

Volcanic Ash

Fine particles of rock and volcanic glass created by explosive volcanic eruptions.