Krishana Reddy was the head of pharmaceutical company that was trying to develop a new product. Reddy, along with his friend Prabhakar Rao, assessed that such products had mixed success, Reddy and Rao realised that if a new product (a drug)was a success/it may result in sales of 100 crore but if it is unsuccessful, the sale may be only 20 crore. They further assessed that a new drug was likely to be successful 50% of times. Cost of launching the new drug was likely to be 50 crore. Now, Reddy and Rao were in a quandary whether the company should go ahead and market the drug. They contacted Raj, a common friend for advice. Raj was of the opinion that given the risky nature of launch, it may be a better idea to test the market. Rao and Reddy realised test marketing would cost 10 crore. Raj told them the previous test meeting results have been unfavourable 70% of times and success rate of products favourably tested was 80%. Further, when marketing results were unfavourable; the products have been successful 30% of the times.
How much profit can the company expect to earn, if it, launches the new drug? (suppose there are no additional costs)
(a)
12 crore
(b)
10 crore
(c)
10.5 crore
(d)
11 crore
Krishana Reddy was the head of pharmaceutical company that was trying to develop a new product. Reddy, along with his friend Prabhakar Rao, assessed that such products had mixed success, Reddy and Rao realised that if a new product (a drug)was a success/it may result in sales of 100 crore but if it is unsuccessful, the sale may be only 20 crore. They further assessed that a new drug was likely to be successful 50% of times. Cost of launching the new drug was likely to be 50 crore. Now, Reddy and Rao were in a quandary whether the company should go ahead and market the drug. They contacted Raj, a common friend for advice. Raj was of the opinion that given the risky nature of launch, it may be a better idea to test the market. Rao and Reddy realised test marketing would cost 10 crore. Raj told them the previous test meeting results have been unfavourable 70% of times and success rate of products favourably tested was 80%. Further, when marketing results were unfavourable; the products have been successful 30% of the times.
How much profit can the company expect to earn, if it, launches the new drug? (suppose there are no additional costs)
(a)
12 crore
(b)
10 crore
(c)
10.5 crore
(d)
11 crore
Question ID - 53349 | SaraNextGen Top Answer
Krishana Reddy was the head of pharmaceutical company that was trying to develop a new product. Reddy, along with his friend Prabhakar Rao, assessed that such products had mixed success, Reddy and Rao realised that if a new product (a drug)was a success/it may result in sales of 100 crore but if it is unsuccessful, the sale may be only 20 crore. They further assessed that a new drug was likely to be successful 50% of times. Cost of launching the new drug was likely to be 50 crore. Now, Reddy and Rao were in a quandary whether the company should go ahead and market the drug. They contacted Raj, a common friend for advice. Raj was of the opinion that given the risky nature of launch, it may be a better idea to test the market. Rao and Reddy realised test marketing would cost 10 crore. Raj told them the previous test meeting results have been unfavourable 70% of times and success rate of products favourably tested was 80%. Further, when marketing results were unfavourable; the products have been successful 30% of the times.
How much profit can the company expect to earn, if it, launches the new drug? (suppose there are no additional costs)
(a)
12 crore
(b)
10 crore
(c)
10.5 crore
(d)
11 crore
|
Krishana Reddy was the head of pharmaceutical company that was trying to develop a new product. Reddy, along with his friend Prabhakar Rao, assessed that such products had mixed success, Reddy and Rao realised that if a new product (a drug)was a success/it may result in sales of 100 crore but if it is unsuccessful, the sale may be only 20 crore. They further assessed that a new drug was likely to be successful 50% of times. Cost of launching the new drug was likely to be 50 crore. Now, Reddy and Rao were in a quandary whether the company should go ahead and market the drug. They contacted Raj, a common friend for advice. Raj was of the opinion that given the risky nature of launch, it may be a better idea to test the market. Rao and Reddy realised test marketing would cost 10 crore. Raj told them the previous test meeting results have been unfavourable 70% of times and success rate of products favourably tested was 80%. Further, when marketing results were unfavourable; the products have been successful 30% of the times. How much profit can the company expect to earn, if it, launches the new drug? (suppose there are no additional costs) |
|||
|
(a) |
12 crore |
(b) |
10 crore |
|
(c) |
10.5 crore |
(d) |
11 crore |
Launching cost of the product = 50 crore
Expected sale when there is 50% probability of product being successful = 50% of sale on successful + 50% of sale being unsuccessful
= 
= 60 crore
Profit = sale − launching cost = 60−50 = 10 crore.