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You're the manager of the firm that sells a commodity in market that resembles perfect competition, and your cost function is C(Q)=Q+2Q^2. 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 60 percent chance the market price will be $100. and a 40 percent chance it will be $200.

a. Compute the expected market price.

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

c. What are your expected profits?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9306581

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