Suppose you are the manager of an Agriculture company that sells “commodities” in a perfect competition market. Your firm’s total cost function is TC = 20Q2 − 480Q + 1724. Unfortunately, due to Covid 19 pandemic, you must set the production output without knowing for certain the price that will prevail in the market. However, 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 output should you produce in order to maximize expected profits? c. What are your expected profits?

Suppose you are the manager of an Agriculture company that sells “commodities” in a perfect competition market. Your firm’s total cost function is TC = 20Q2 − 480Q + 1724. Unfortunately, due to Covid 19 pandemic, you must set the production output without knowing for certain the price that will prevail in the market. However, 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 output should you produce in order to maximize expected profits? c. What are your expected profits?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 1MC

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