6.12 A pharmaceuticals company marketed a drug that proved to be an effective treatment but unfortunately resulted
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6.12 A pharmaceuticals company marketed a drug that proved to be an effective treatment but unfortunately resulted in side effects for some patients. On the basis of initial clinical research the probability that a patient who is treated with the drug suffers no side effect is 0.85, the probability of a minor side effect is 0.11, and the probability of a major side effect is 0.04. Under an agreement with the appropriate authorities the company has agreed to pay £2500 in compensation to patients who suffer a minor side effect and £20 000 in compensation to patients who suffer a major side effect.
What is the expected value of the compensation per patient?
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