Use the information for the question(s)below.
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 Little Cure's 10 drugs?
A)$1 billion
B)$500 million
C)$100 million
D)$0

Question

Quizplus · Accepted Answer

The expected payoff for Little Cure's 10 drugs is calculated as follows:
Expected value = (probability of approval) x (net income per drug) x (number of drugs)
Expected value = (0.5) x ($100 million) x (10) = $500 million.
Therefore, the best choice is B, as it represents the expected payoff for Little Cure's 10 drugs.

Use the Information for the Question(s)below