expected profit maximizing output
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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)=Q +2Q2. 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) Calculate the expected market price.
B) What output should you produce in order to maximize expected profit?
C) What are your expected profits?
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