The probability that a pharmaceutical firm will successfully develop a new drug that will return $750 million dollars is 0.14. Of the resear

Question

The probability that a pharmaceutical firm will successfully develop a new drug that will return $750 million dollars is 0.14. Of the research is unsuccessful, the company incurs a cost of $100 million dollars. What is the expected return in the long run for continually trying to develop new drugs?

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Mary 4 weeks 2021-12-31T02:08:45+00:00 1 Answer 0 views 0

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    2021-12-31T02:09:55+00:00

    Answer:

    The expected return in the long run for continually trying to develop new drugs is $19 million dollars.

    Step-by-step explanation:

    We have these following probabilities for the pharmaceutical firm:

    A 14% probability that the research to develop a new drug is successful, earning $750 million dollars.

    An 86% probability that the research to develop a new drug is unsucessful, losing $100 million dollars.

    What is the expected return in the long run for continually trying to develop new drugs?

    14% probability of earning $750 million, 86% probability of losing $100 million. So

    E = 0.14*750 - 0.86*100 = 19

    The expected return in the long run for continually trying to develop new drugs is $19 million dollars.

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