OPIM 550 EP: MANAGERIAL STATISTICS, FALL 2017
MCDONOUGH SCHOOL OF BUSINESS, GEORGETOWN UNIVERSITY
(15 pts) The National Patent Development Corporation (NPD) is a company that takes newly patented
products from the design state through to sales to the consumer. Recently, NPD acquired a new
product that could be used to replace a dentist's drill. The product, called Caridex, is a solution that
dissolves decayed matter in dental cavities without requiring drilling. After some research, it was
discovered that Caridex works well only on cavities on the top surface of teeth, where a small fraction
of cavities occur.
From their records, there are approximately 280,000 dentists in the United States treat cavities. A
preliminary analysis revealed that only 4% of all dentists would use Caridex in the first year after its
production. The dispensing unit costs NPD a small amount, and they intend to sell the unit at cost. The
solution however costs NPD $0.50 per cavity and will be sold to dentists at a price of $2.50 per cavity.
Fixed annual costs are expected to be $4 million for the first year.
NPD would like an estimate of the profit it can expect in the first year of operation. Because NPD's
profits will depend completely on the number of cavities treated with Caridex during the year, NPD
commissioned a survey of 400 dentists who planned to use Caridex. Each dentist was asked how many