A Pharmaceutical Company Has Determined That If a New Cholesterol-Reducing

question 102

Multiple Choice

A pharmaceutical company has determined that if a new cholesterol-reducing drug is manufactured and introduced to the market, the following probability distribution will describe the contribution of this drug to their profits during the next six months. The company management has decided to market this product if the expected contribution to profit for the next six months is more than $1,000,000. Based on the information given above, should the company begin manufacturing the new drug? Explain your answer.

• A) Yes, begin manufacturing.
• B) No, do not begin manufacturing.

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Definitions:

Excess Demand

A situation where the quantity demanded of a good or service exceeds the quantity supplied at a particular price, often leading to upward pressure on prices.

Consumer Surplus

The disparity between the cumulative amount consumers are willing to pay for a product or service and the amount they actually pay.

Market Equilibrium

Market equilibrium is a state in a market where the quantity of goods supplied equals the quantity demanded, and there is no incentive for price to change, balancing the forces of supply and demand.

Producer Surplus

The difference between what producers are willing to sell a good for and the price they actually receive.