Should warren implement his idea or not

Reference no: EM13201179

Suppose that Jeffs friend Warren has an idea for product improvement at his firm but he is concerned that the idea may already be patented. If indeed the improvement is already patented, the firm holding the patent may sue Warren for infringing the patent and Warren would be fined if he loses the court case. Suppose that if he does not implement his idea, no product improvement will occur and his firms profit this year will be $20,000. If he implements the idea and he is found not to have infringed on someones patent, he could achieve a $50,000 profit this year. However, there is a 30% chance that a court will find that he infringed on someone's patent and fine him $40,000 (such that if he implements his idea and is found guilty of infringement, his payoff from implementing the idea will be the difference between the $50,000 profit he achieved and the $40,000 fine, which is $10,000). If Warrens utility function is $U(I)=\sqrt{I}$ , should he implement his idea or not?

Reference no: EM13201179

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