A risk-neutral competitive firm produces an output y, facing an unknown price, p. Its profits are given by π = py-y². Consider two alternative price distributions. According to the first distribution, p can get the values zero and 4 with probabilities .25 and .75, respectively. According to the second distribution, p can get the values 1 and 5 with equal probabilities. The firm's expected value of perfect information is: (a) higher with distribution 2 (b) higher with distribution 1 (c) the same for both distributions (d) since the probabilities are different, we do not know which expected value of perfect information is higher (e) since the two possible outcomes are different, we do not know which expected value of perfect information is higher

A risk-neutral competitive firm produces an output y, facing an unknown price, p. Its profits are given by π = py-y². Consider two alternative price distributions. According to the first distribution, p can get the values zero and 4 with probabilities .25 and .75, respectively. According to the second distribution, p can get the values 1 and 5 with equal probabilities. The firm's expected value of perfect information is: (a) higher with distribution 2 (b) higher with distribution 1 (c) the same for both distributions (d) since the probabilities are different, we do not know which expected value of perfect information is higher (e) since the two possible outcomes are different, we do not know which expected value of perfect information is higher

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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