Question

The probability that a pharmaceutical firm will successfully develop a new drug that will return $750 million is .014. If the research is unsuccessful, the company incurs a cost of $100 million. What is the expected return in the long run for continually trying to develop new drugs? In millions.

Answer 1

Let X is a random variable shows the return in million. Here X can take value $750 and -$100.

Since  probability that a pharmaceutical firm will successfully develop a new drug that will return $750 is .014 so

P(X = 750) = 0.014

By the complement rule,

Now the expected return will be,

Hence, required expected return is -$88.1 million.