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For the next 4 questions, consider the following setting: Pfizer is developing a vaccine for a novel corona virus. Since this is a new vaccine,
For the next questions, consider the following setting:
Pfizer is developing a vaccine for a novel corona virus. Since this is a new vaccine, Pfizer only has a very rough estimate of its probability of success. The cost of development and testing is expected to be $ million. The revenue if the vaccine succeeds is expected to be $ million.
What is the minimum probability of success needed for Pfizer to undertake this vaccine project? Write down your answer in percentage. For instance, if your answer is write down
Now suppose the probability of success that Pfizer has initially estimated is What is the value of this project? Write your answer in millions. For instance, if your answer is $ million, then write
If Pfizer spends $ million on some additional optional technical studies before they start developing the vaccine they believe that they will be able to get better estimates for the success probabilities. Suppose that the Pfizer expects that upon completion of these technical studies, the success probabilities may end up being either or or each with equal likelihood. What is the value of the vaccine project with the additional technical studyWrite your answer in millions. For instance, if your answer is $ million, then write
What is the maximum amount Pfizer should be willing to spend on these optional technical studies? Write your answer in millions. For instance, if your answer is $ million, then write
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