An IT company plans to invest in a new game app for smart phones. Suppose there is a 20% chance that the company will lose $100,000, a 40% chance it will lose $75,000, and a 40% chance of a $250,000 profit. Based only on this information, should the IT company invest in the app?

Question

Wayne Cummings

Mathematics

19 August, 22:18

An IT company plans to invest in a new game app for smart phones. Suppose there is a 20% chance that the company will lose $100,000, a 40% chance it will lose $75,000, and a 40% chance of a $250,000 profit. Based only on this information, should the IT company invest in the app?

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Quentin Guerrero · Answer 1

We can calculate the total amount that is to be lost by multiplying the percentages and the amounts.

Loss: (0.20) ($100,000) + (0.40) ($75,000) = $50,000

Gain: (0.40) ($250,000) = $100,000

The gain is larger compared to the possibly loss. Thus, the IT company should invest in the app.