As the manager of Smith Construction, you need to make a decision on the number of homes to build in a new residential area where you are the only builder. Unfortunately, you must build the homes before you learn how strong demand is for homes in this large neighborhood. There is a 20 percent chance of low demand and a 80 percent chance of high demand. The corresponding (inverse) demand functions for these two scenarios are P = 200,000 -350Q and P = 500,000-275Q, respectively. Your cost function is C(Q) = 185,000 + 324,000Q. How many new homes should you build, and what profits can you expect? Number of homes you should build: homes Profits you can expect: $
As the manager of Smith Construction, you need to make a decision on the number of homes to build in a new residential area where you are the only builder. Unfortunately, you must build the homes before you learn how strong demand is for homes in this large neighborhood. There is a 20 percent chance of low demand and a 80 percent chance of high demand. The corresponding (inverse) demand functions for these two scenarios are P = 200,000 -350Q and P = 500,000-275Q, respectively. Your cost function is C(Q) = 185,000 + 324,000Q. How many new homes should you build, and what profits can you expect? Number of homes you should build: homes Profits you can expect: $
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:As the manager of Smith Construction, you need to make a decision on the number of homes to build in a new
residential area where you are the only builder. Unfortunately, you must build the homes before you learn how strong
demand is for homes in this large neighborhood. There is a 20 percent chance of low demand and a 80 percent chance
of high demand. The corresponding (inverse) demand functions for these two scenarios are P = 200,000 -350Q and P
= 500,000-275Q, respectively. Your cost function is C(Q) = 185,000 + 324,000Q.
How many new homes should you build, and what profits can you expect?
Number of homes you should build:
homes
Profits you can expect: $
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