Answer:
So then the expected value in the long run for this case would be 19 millions
Step-by-step explanation:
Previous concepts
The expected value of a random variable X is the n-th moment about zero of a probability density function f(x) if X is continuous, or the weighted average for a discrete probability distribution, if X is discrete. And is defined as:
For
Solution to the problem
Let's define the random variable X as the expected return for a new drug.
For this case we expected a return of X=750 millions with a probability of 0.14. We assume that p is the probability of success for this case p =0.14.
And the probability of no success on this case would be q = 1-p = 1-0.14 =0.86. And the cost associated for this case would be X= -100 million
If we use the definition of expected value we have this:
So then the expected value in the long run for this case would be 19 millions
