Question
Big Pill and Little Pill are both pharmaceutical companies. Big Pill presently has a potential blockbuster drug before the Food and Drug Administration (FDA) waiting
Big Pill and Little Pill are both pharmaceutical companies. Big Pill presently has a potential "blockbuster" drug before the Food and Drug Administration (FDA) waiting for approval. If approved, Big Pill's blockbuster drug will produce $1 billion in net income for Big Pill. Little Pill has 10 separate less important drugs before the FDA waiting for approval. If approved, each of Little Pill's drugs would produce $100 million in net income for Little Pill. The probability of the FDA approving a drug is 50%. What is the expected payoff for Big Pill's Blockbuster drug?
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