Consider once again the R&D strategies of the pharmaceutical company described earlier in this chapter. Suppose the
Question:
Consider once again the R&D strategies of the pharmaceutical company described earlier in this chapter. Suppose the company's management is risk averse and has assessed the following utility values for the set of possible outcomes (in millions of dollars). Outcome Utility Outcome Utility $200 100 $70 59 180 60 55 95 170 92 50 50 100 71 40 44 80 64 20 32 0 0 Compute the expected utility of pursuing the biochemical approach alone. Next, find the expected utility of pursuing the biogenetic approach first, then continuing with the biochemical approach if necessary. In light of these calculations, what action do you recommend for the company? How has the company's risk aversion influenced its decision?
Step by Step Answer:
Managerial Economics
ISBN: 9781119554912
5th Edition
Authors: William F. Samuelson, Stephen G. Marks