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Suppose a pharmaceutical company estimates that if they invest $1 billion on the research and development (R&D) of a new pharmaceutical, they expect to earn
Suppose a pharmaceutical company estimates that if they invest $1 billion on the research and development (R&D) of a new pharmaceutical, they expect to earn $500 million in accounting profit as a result (their stream of future revenue would be $500 million higher than all of their explicit costs, including the R&D costs). Based on this information, should this company invest $1 billion to develop this pharmaceutical? What does this decision depend on?
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