A drug company is deciding how much to invest in Research and Development into finding a cure for the common cold. The table below shows the company’s demand for financial capital for R&D of this cold drug, based on its expected rates of return from selling the cure. Every investment has an additional 4% social return: that is, an investment that pays at least a 5% return to the drug company will create at least a 9% return for society as a whole.   Estimated Rate of Return_____________________ Value of R&D Projects That Provide at Least This High a Private Rate of Return to the Drug Company (measured in millions of dollars)   10%        $220 9%          $228 8%          $238 7%          $250 6%          $264 5%          $280 4%          $298   If the opportunity cost of financial capital for the drug company is 7%, the drug company will invest          in R&D if it receives both the private and the social benefits of this investment.   Question 3 options:   $308   $264   $250   $228

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
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Chapter1: Making Economics Decisions
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A drug company is deciding how much to invest in Research and Development into finding a cure for the common cold. The table below shows the company’s demand for financial capital for R&D of this cold drug, based on its expected rates of return from selling the cure. Every investment has an additional 4% social return: that is, an investment that pays at least a 5% return to the drug company will create at least a 9% return for society as a whole.

 

Estimated Rate of Return_____________________ Value of R&D Projects That Provide at Least This High a Private Rate of Return to the Drug Company (measured in millions of dollars)

 

10%        $220

9%          $228

8%          $238

7%          $250

6%          $264

5%          $280

4%          $298

 

If the opportunity cost of financial capital for the drug company is 7%, the drug company will invest          in R&D if it receives both the private and the social benefits of this investment.

 

Question 3 options:

 

$308

 

$264

 

$250

 

$228

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