You are the manager of a firm that sells a “commodity” in a market that resembles perfect competition, and your cost function is C(Q) = 2Q + 3Q2. Unfortunately, due to production lags, you must make your output decision prior to knowing for certain the price that will prevail in the market. You believe that there is a 70 percent chance the market price will be $200 and a 30 percent chance it will be $600.a. Calculate the expected market price.$ b. What ouptut should you produce in order to maximize expected profits?unitsc. What are your expected profits?$
You are the manager of a firm that sells a “commodity” in a market that resembles perfect competition, and your cost function is C(Q) = 2Q + 3Q2. Unfortunately, due to production lags, you must make your output decision prior to knowing for certain the price that will prevail in the market. You believe that there is a 70 percent chance the market price will be $200 and a 30 percent chance it will be $600.a. Calculate the expected market price.$ b. What ouptut should you produce in order to maximize expected profits?unitsc. What are your expected profits?$
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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You are the manager of a firm that sells a “commodity” in a market that resembles
a. Calculate the expected market price.
$
b. What ouptut should you produce in order to maximize expected profits?
units
c. What are your expected profits?
$
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