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Alexander Verna, CEO of Drugnorm is evaluating the option of manufacturing generic version of a bestselling and soon to go off the patent drug. Mark, the marketing head, has determined that the company could charge a maximum price of $5 for the standard dose of the product. Alexander does not wish to produce any product that will not generate at least a 25 percent gross profit margin.
The answer to which of the following questions would be most relevant to the CEO in determining whether or not to produce a generic form of this drug?
A. If the company does produce the drug, what color should its container be? B. How much did the rival company charge for a standard dose of the drug when it first came on the market? C. Does the company's sales force currently understand the pharmaceutical properties of this particular drug? D. By how much did the company's total revenue increase or decrease over the last five years? E. What will be the average cost per standard dose to manufacture and sell this product?
What is the answer for this? I am not able to come up with a reason. Is it B?
Actually, this is how I approached it ( other forum members, please correct me if I am going wrong somewhere)
A) seemed irrelevant. We are NO where talking about the color. Our main motto is to bring in an increase in revenue of Drugnorm's company.
B) I did not choose this one because as far as my understanding from the question, the plan is to bring an increase in revenue of Drugnorm's company without doing any comparisons with our company. Also, the statement mentioned 'patent', so, it should be specific to this company only and that's why I did think that doing comparisons with other company will hold any good here. Thus, did not choose B.
C) I do understand that there is a discussion about the Marketing head, suggesting a maximum price for the drug. But, I still did not choose this choice because I found it too extreme and not very much limited to the context we are talking about. If we are talking about profit, we would surely see what's the costs that have been incurred in preparing the product and then similarly will put a cap on what's the selling price should be to attain a specific profit margin. I did not see that happening here.
d) My understanding of the question stem says that we are trying to increase the gross margin for a particular product and thus did not go for this choice as it talks about the company's performance from the last 5 years; again quite too extreme for me to consider.
and thus finally selected E. It talks about the average cost the company will be bearing to produce the product and the same can be helpful in arriving at the profit margin cap.
Hope this helps in some way.
Please do correct me I did not get this question correctly. Thanks in advance !!