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A firm is making production plans for upcoming quarter, but the manager doesn't know what the price of the product will be next month. She thinks there is a 30 percent chance price will be $500 and a 70 percent chance price will be $750. The four possible profit outcomes are:

Profit (loss) when price is:

$500 $750

Option A: produce 1,000 units -$12,000 $80,000

Option B: produce 2,000 units -$20,000 $150,000

a. Which option has the higher expected profit?

b. Which option has the highest (absolute) risk?

c. Which option is chosen using the coefficient of variation rule?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M9307039

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