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Expected Profit Contribution

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A pharmaceutical company has determined that if a new cholesterol-reducing drug is manufactured (introduced to the market) the following probability distribution will describe this drug's contribution to the company profits during the next six months.

Profit Contribution Probability of Profit contribution
($30,000) 0.2
$50,000 0.5
$200,000 0.3

The company management has decided to market this product if the expected contribution to profit for the next six months is more than $90,000. Based on the information given above, should the company begin manufacturing the new drug?

Yes or No? (To Begin Manufacturing)

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Solution Summary

The solution provides step by step method for the calculation of expected value of a probability distribution.

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Solution

No

Hint:

Expected Profit contribution = (30,000) * 0.2 + ...

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