10. Merck is considering the launch of a new drug called Laffolin. Merck has identified two possible demand scenarios:

Merck also has the following information:

a. (*) How many patients must Merck have in order to break even?

b. (**) How much money will Merck make if demand for Laffolin is 1,000,000 patients? If demand is 2,000,000 patients?

c. (**) What is the expected value of making Laffolin?

d. (**) Draw the decision tree for the Laffolin decision, showing the profits for each branch (Total revenues –
total variable costs – total fixed costs) and all expected values.

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DEMAND LEVEL 1,000,000 patients 2,000,000 patients PROBABILITY 30% 70%