Results 1 to 4 of 4

Math Help - R&D Costs

  1. #1
    Newbie
    Joined
    Mar 2011
    Posts
    2

    R&D Costs

    A pharmaceutical firm can develop a patentable face cream using either of two independent processes, each of which has a 25 percent chance of costing $5 million, a 25 percent chance of costing $10 million, and a 50 percent chance of costing $20 million. If the firm can determine the true cost of both processes after spending $2 million on each, what is the minimized expected cost of developing the patent?

    Solution: 12.313

    Any ideas HOW to arrive at 12.313?
    Follow Math Help Forum on Facebook and Google+

  2. #2
    MHF Contributor
    Joined
    Mar 2010
    From
    Florida
    Posts
    3,093
    Thanks
    5
    Quote Originally Posted by ikebukuro View Post
    A pharmaceutical firm can develop a patentable face cream using either of two independent processes, each of which has a 25 percent chance of costing $5 million, a 25 percent chance of costing $10 million, and a 50 percent chance of costing $20 million. If the firm can determine the true cost of both processes after spending $2 million on each, what is the minimized expected cost of developing the patent?

    Solution: 12.313

    Any ideas HOW to arrive at 12.313?
    Since it says mimize, you need to take the derivative of the E[C] function and set it equal to zero.
    Follow Math Help Forum on Facebook and Google+

  3. #3
    Newbie
    Joined
    Mar 2011
    Posts
    2
    Well, there's no explicit cost function here. Even if I go for the C(index) derivatives, the only thing left will be probabilities, which altogether add up to 1.
    Follow Math Help Forum on Facebook and Google+

  4. #4
    MHF Contributor
    Joined
    Mar 2010
    From
    Florida
    Posts
    3,093
    Thanks
    5
    Quote Originally Posted by ikebukuro View Post
    Well, there's no explicit cost function here. Even if I go for the C(index) derivatives, the only thing left will be probabilities, which altogether add up to 1.
    You need to determine the expect cost.
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. [SOLVED] monthly costs vs Direct costs
    Posted in the Algebra Forum
    Replies: 1
    Last Post: July 1st 2011, 02:48 PM
  2. Costs of Various Items
    Posted in the Algebra Forum
    Replies: 2
    Last Post: April 27th 2011, 04:28 PM
  3. Total Costs!! PLEase help
    Posted in the Calculus Forum
    Replies: 0
    Last Post: November 29th 2008, 08:17 AM
  4. Replies: 0
    Last Post: October 26th 2008, 05:29 PM
  5. [SOLVED] costs
    Posted in the Business Math Forum
    Replies: 1
    Last Post: February 4th 2008, 06:34 PM

Search Tags


/mathhelpforum @mathhelpforum