Suppose that Blackberry is deciding whether or not to develop a new smartphone. If the firm...
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Suppose that Blackberry is deciding whether or not to develop a new smartphone. If the firm develops the phone and it is a success with customers, then its current profits will increase by 50%. However, if the phone is not a success, the firm will suffer losses, but these losses depend on whether or not the phone's design can be of value to other firms: if some other firm is willing to buy the phone's design from Blackberry, then Blackberry suffers a 25% drop in its profits, while if no other firm is interested in the design, Blackberry suffers a 100% drop in its profits. Blackberry believes that there is a 70% chance that the new phone will be a success with customers. (a) Describe the list of consequences for this decision problem. (b) Describe the following lotteries: •IIN is the lottery corresponding to Blackberry not developing the new phone. • IIYY is the lottery corresponding to Blackberry developing the new phone and being certain that other firms will buy the phone's design if it is not a success with customers. ● IIY? is the lottery corresponding to Blackberry developing the new phone but having no information about whether or not ther firms will buy the phone's design if it is not a success with customers. Suppose that Blackberry is deciding whether or not to develop a new smartphone. If the firm develops the phone and it is a success with customers, then its current profits will increase by 50%. However, if the phone is not a success, the firm will suffer losses, but these losses depend on whether or not the phone's design can be of value to other firms: if some other firm is willing to buy the phone's design from Blackberry, then Blackberry suffers a 25% drop in its profits, while if no other firm is interested in the design, Blackberry suffers a 100% drop in its profits. Blackberry believes that there is a 70% chance that the new phone will be a success with customers. (a) Describe the list of consequences for this decision problem. (b) Describe the following lotteries: •IIN is the lottery corresponding to Blackberry not developing the new phone. • IIYY is the lottery corresponding to Blackberry developing the new phone and being certain that other firms will buy the phone's design if it is not a success with customers. ● IIY? is the lottery corresponding to Blackberry developing the new phone but having no information about whether or not ther firms will buy the phone's design if it is not a success with customers.
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a The consequences for this decision problem are as follows 1 If the new phone is a success with cus... View the full answer
Related Book For
Principles of Managerial Finance
ISBN: 978-0133507690
14th edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Posted Date:
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