Question

Merck is considering launching a new drug called Laffolin. Merck has identified two possible demand scenarios:
DEMAND LEVEL PROBABILITY
1 million patients....... 30%
2 million patients........ 70%
Merck also has the following information:
Revenue.......... $140 per patient
Fixed costs to manufacture
and sell Laffolin........ $70 million
Variable costs to manufacture
and sell Laffolin........ $80 per patient
Maximum number of patients
that Merck can handle......3 million
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 million patients? If demand is 2 million 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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  • CreatedApril 10, 2015
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