You own a small firm that manufactures and sells a standardized product in a marketplace that closely resembles perfect competition. You have estimated your total cost function at C(Q) = Q + 3Q2, and your marginal cost function as MC = 1 + 6Q. In trying to plan for the upcoming year, you estimate there is a 75 percent chance the market price will be $100 and a 25% chance it will be $120.
- Compute the expected market price. Show calculations please.
- How many units should you produce to maximize expected profits?
- What is your expected profit or loss? Again, show work.