Question

Big Cure and Little Cure are both pharmaceutical companies. Big Cure presently has a potential "blockbuster" drug before the Food and Drug Administration (FDA) waiting for approval. If approved, Big Cure's blockbuster drug will produce $1 billion in net income for Big Cure. Little Cure has ten separate, less important drugs before the FDA waiting for approval. If approved, each of Little Cure's drugs would produce $50 million in net income. The probability of the FDA approving a drug is 50%. What is the expected payoff for Little Cure's ten drugs? (2 points)

A) $250 million

B) $50 million

C) $1 billion

D) $0

Answer 1

Correct option is A.

$250 million

Step-by-step explanation:

Probability of approval for each drug=50% and if approved, net income from each for Little Cure=$50 million.

So, expected payoff from ten drugs of Little Cure=50*0.5*10=$250 million