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Big Cure and Little Cure are both pharmaceutical companies. Big Cure presently has a potential 'blockbuster' drug before the Therapeutic Goods Administration (TGA)waiting for approval. If approved, Big Cure's blockbuster drug will produce $1 billion in net income for Big Cure. Little Cure has 10 separate, less important drugs before the TGA waiting for approval. If approved, each of Little Cure's drugs would produce $100 million in net income for Little Cure. The probability of the TGA approving a drug is 50%.
-What is the expected payoff for Big Cure's blockbuster drug?
A)$500 million
B)$100 million
C)$0
D)$1 billion

Question

Quizplus · Accepted Answer

The expected payoff is calculated by multiplying the net income if approved ($1 billion) by the probability of approval (50% or 0.5), which equals $500 million.

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