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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) = 40Q + 5Q2 (so MC = 40+10Q). 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 80 percent chance the market price will be $400 and a 20 percent chance it will be $600.

a. Calculate the expected market price.

b. What output should you produce in order to maximize expected profits?

c. What are your expected profits?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91706230

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