Question: A pharmaceutical company has formed a team to handle FDA applications for approval of new drugs. Requests for applications arrive at a rate of 1 every year. The arrivals follow a Poisson process. On average, the team processes an application for 9 months. The company estimates that the average cost of revenue losses associated with waiting for a new drug to be approved is $100,000 per drug per month. The cost of a team is $50,000 per month.
a. Estimate the total cost due to revenue losses in the current process.
b. Should the company add a second team?