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 = 400,000 −400Q and P = 900,000 −250Q, respectively. Your cost function is C(Q) = 125,000 + 430,000Q. How many new homes should you build, and what profits can you expect? Number of homes you should build: 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 = 400,000 −400Q and P = 900,000 −250Q, respectively. Your cost function is C(Q) = 125,000 + 430,000Q. How many new homes should you build, and what profits can you expect? Number of homes you should build: homes
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
P = 400,000 −400Q and
P = 900,000 −250Q, respectively. Your cost function is C(Q) = 125,000 + 430,000Q.
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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