You are the manager of a firm that sells a “commodity” in a market that resemble

Question

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) = 2Q + 3Q2. 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 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?

*Please explain the answers

Explanation / Answer

$320 = 2 + 6*Q

$318 = 6Q

Q = 53

TR = 53*320 =16960

TC = 2*53+3*(53*53) =8533

Profits= 8427

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