1. The pharmaceutical firm expects to be granted patent protection for Dendadrine; drugs under patent protection typically sell at prices that are approximately ten times their variable costs. --- CORRECT, because it tells us that D will soon be patented and patented products sell 10 times their variable costs. That will surely be enough to be a major part in firms profits.

2, The development of some pharmaceutical products involves substantial initial expenditures on research, testing, and approval.--- Out of scope. Does not talk about variable costs or revenue...

3. In clinical tests, Dendadrine has proven far more effective at treating severe stomach disorders than any prior available treatments, without any serious side effects. --- Out of Scope. No information about variable costs and the pricing etc. Just tells us that D is going to sell well but we don't know how much money it will make.

4. No competitors are developing or planning to develop new medicines that might compete with Dendadrine in the marketplace. --- Out of Scope. Again even though D will sell well. We have no information on the price and variable costs of D.

5. Millions of people suffer from severe stomach disorders, representing an estimated one to two billion dollars every year in revenue. --- Okay. D will probably make up the 5 billion in a few years. But do we know what are the variable costs of D. For example, what if storing D costs another $5 billion a year and on top of that transporting D in a high security, cool temperature trucks cost another $5 billion a year. Now do we know for sure that even though it is expected to earn 1-2 billion, it will make up for all the variable costs...

Check out this link with the same question and more explanations...
a-certain-pharmaceutical-firm-recently-developed-a-new-105428.html

Hope that helps.

It's clear A , after I understood the meaning of "break even" and "variable cost"

break even-reach a point in a business venture when the profits are equal to the costs. a point where a firm is neither at loss nor at profit
variable cost- a cost that varies with the level of output.
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size is already taken care of in premise . Read this-"Given the size of the market for Dendadrineand the amount of the initial investment in its development, the company would need to sell Dendadrine at a price that is at least 5 times greater than its variable costs just to break even."

so you have to find answer that says they can sell at price more than 5 times.
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Hi,
My doubt regarding Option A.
Although Size of the market is mentioned , it is not clear if drug will be accepted by people when Price is 10x.
From the answer options it is evident that other company drugs are also present.
People may prefer to buy cheaper drugs.

Please help to clear this confusion.

A certain pharmaceutical firm recently developed a new medicine, Dendadrine, that provides highly effective treatment of severe stomach disorders that were previously thought to be untreatable. However, to develop the new medicine, the company spent nearly $5 billion in research and development costs. Given the size of the market for Dendadrine and the amount of the initial investment in its development, the company would need to sell Dendadrine at a price that is at least 5 times greater than its variable costs just to break even. Yet the company’s management claims that Dendadrine will soon become the major driver of the firm’s profits.

Which of the following statements best reconciles the management’s claim with the evidence on the expenditures associated with the development of Dendadrine?

Type - Explain the situation /Paradox
A. The pharmaceutical firm expects to be granted patent protection for Dendadrine; drugs under patent protection typically sell at prices that are approximately ten times their variable costs. - Correct

B. The development of some pharmaceutical products involves substantial initial expenditures on research, testing, and approval. - Irrelevant

C. In clinical tests, Dendadrine has proven far more effective at treating severe stomach disorders than any prior available treatments, without any serious side effects. - Irrelevant -the argument already talks about this

D. No competitors are developing or planning to develop new medicines that might compete with Dendadrine in the marketplace. - iSWAT - but this does not explain that product will be profitable

E. Millions of people suffer from severe stomach disorders, representing an estimated one to two billion dollars every year in revenue. - irrelevant - it is not related to this particular case and describes the situation for the industry as a whole

Answer A
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