SOAR TECHNOLOGIES sells hang-gliders and related recreational equipment. They have invented a new product, the Laminar Z9. However, they fear they are not a big enough company to exploit this exciting new concept, so they have decided to sell the patent to someone else.
SAN FRANCISCO. A new kind of hang glider is appearing over the cliffs of San Francisco. Thanks to technology, it's faster and safer than previous generations. This weekend, Ralph Woo joined local enthusiasts at Fort Funston in the drive to discover a better way to fly.
This is only the second time SOAR Technolo¬gies has launched its brand new Laminar Z9, "the Ferrari of hang gliders." The first of its kind in the U.S., it could also be the fastest. The longtime San Francisco hang glider says, "It flies straight fast, it flies upside down, it flies any which way you want it to fly. And it flies really sweet slow."
No sport exploits new technologies more than soaring. And what's new is not what has appeared on the machines, but what has disappeared. The topless look is in, according to Steve Snodgrass, President of the Fort Funston hang gliding club. "Things you don't see are the high-tech carbon fiber cross bar that's inside the dou¬ble surface of the sail. The newer sails are made out of Mylar. It's a much slipperier cloth. They've eliminated the king post, the vertical post that comes to the top of the glider."
While uncertain, they have estimated the net revenue from this patent to have the probability distribution,
f(x) = y exp(-yx)
in which y = 0.05 and x=million dollars (x≥0). The expected value of the profits (EMV) is E[x] = y-1 = $20m, and the variance is Var[x] = y-2 = 400m2.
Lulu has worked with the SOAR's Board of Directors to understand the corporate attitude toward risk. The company is not very large, so they are quite averse to risk. She has approx¬imated the corporate utility function as,
u(x) = 1 - e-o.osx
in which x=million dollars (x ≥ 0).
What price should SOAR TECHNOLOGIES be willing to accept in exchange for the patent?