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 40 percent chance of low demand and a 60 percent chance of high demand. The corresponding (inverse) demand functions for these two scenarios are P = 500,000 −200Q and P = 900,000 −125Q, respectively. Your cost function is C(Q) = 105,000 + 631,500Q. 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 40 percent chance of low demand and a 60 percent chance of high demand. The corresponding (inverse) demand functions for these two scenarios are P = 500,000 −200Q and P = 900,000 −125Q, respectively. Your cost function is C(Q) = 105,000 + 631,500Q. 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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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
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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