Mark is working to create the "metaverse". He has already spent $2 billion on fixed costs. With 30% probability, the metaverse will be a big success, in which case he can choose whether to spend $5 billion on engineering to earn revenues of $20 billion. (If he chooses not to spend all of that amount of engineering, then his revenue from the metaverse will be $0.) With 70% probability, the metaverse will not be popular, in which case Mark will choose whether to spend $5 billion on engineering in order to receive $3 billion in revenue. Assuming that Mark maximizes profit, what is the expected value of his metaverse project? Choose the nearest answer. a. $2.5 billion b. $3.1 billion c. -$2 billion d. $4.5 billion e. $1.1 billion
Economics
Mark is working to create the "metaverse". He has already spent $2 billion on fixed costs. With 30% probability, the metaverse will be a big success, in which case he can choose whether to spend $5 billion on engineering to earn revenues of $20 billion. (If he chooses not to spend all of that amount of engineering, then his revenue from the metaverse will be $0.) With 70% probability, the metaverse will not be popular, in which case Mark will choose whether to spend $5 billion on engineering in order to receive $3 billion in revenue. Assuming that Mark maximizes profit, what is the expected value of his metaverse project? Choose the nearest answer.
a.
$2.5 billion
b.
$3.1 billion
c.
-$2 billion
d.
$4.5 billion
e.
$1.1 billion
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