Big cure and little cure are both pharmaceutical companies. big cure presently has a potential
ʺblockbusterʺ drug before the food and drug administration (fda) waiting for approval. if
approved, big cureʹs blockbuster drug will produce $1 billion in net income for big cure. little
cure has ten separate, less important drugs before the fda waiting for approval. if approved,
each of little cureʹs drugs would produce $100 million in net income. the probability of the
fda approving a drug is 40%.
what is the expected payoff for big cureʹs blockbuster drug?
a) $100 million
b) $0
c) $1 billion
d) $400 million