When investing in a venture with increasing probabilities of success,the firm's optimal-stopping strategy is to:
A)invest until the total cost of its investment equals the potential profit.
B)invest once and continue investing if the probability of success increases.
C)invest until the venture is successful or not invest at all.
D)continue to invest until sunk costs are recovered.
E)invest until the break-even point.

Question

Quizplus · Accepted Answer

The firm's optimal-stopping strategy in a venture with increasing probabilities of success is to invest until the venture is successful or not invest at all. This strategy will maximize the firm's return on investment because it avoids sunk costs and ensures that the firm only invests in ventures that are likely to be successful. Continuing to invest until sunk costs are recovered or investing until the break-even point may result in losses if the venture ultimately fails. Investing once and continuing to invest if the probability of success increases may not be optimal because it ignores changes in the market or competitive landscape that could affect the venture's viability.

When Investing in a Venture with Increasing Probabilities of Success,the