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 60 percent chance of low demand and a 40 percent chance of high demand. The corresponding (inverse) demand functions for these two scenarios are P= 500,000 -250Q and P= 700,000 -200Q, respectively. Your cost function is C(Q) = 125,000 + 350,000 Q. How many new homes should you build, and what profits can you expect? Number of homes you should build: Profits you can expect: $ homes

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 60 percent chance of low demand and a 40 percent chance of high demand. The corresponding (inverse) demand functions for these two scenarios are P= 500,000 -250Q and P= 700,000 -200Q, respectively. Your cost function is C(Q) = 125,000 + 350,000 Q. How many new homes should you build, and what profits can you expect? Number of homes you should build: Profits you can expect: $ homes

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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**Problem 12-12 (algo)**

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 60 percent chance of low demand and a 40 percent chance of high demand. The corresponding (inverse) demand functions for these two scenarios are $ P = 500,000 - 250Q $ and $ P = 700,000 - 200Q $, respectively. Your cost function is $ C(Q) = 125,000 + 350,000Q $.

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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